Is the Global Competitiveness Index by the World Economic Forum a reliable tool for the design of labor market policies? Evidence from Latin American countries

Pillar	Executive Opinion Survey	International organization
Pillar	(soft data)	(hard data)
1: Institutions	50	50
2: Infrastructure	42	58
3: ICT adoption	0	100
4: Macroeconomic stability	0	100
5: Health	0	100
6: Skills	67	33
7: Product market	50	50
8: Labor market	67	33
9: Financial system	33	67
10: Market size	0	100
11: Business dynamism	50	50
12: Innovation capability	40	60
Total	45	55

[i] Notes: GCI, Global Competitiveness Index; ICT, information and communications technology; WEF, World Economic Forum.

[ii] Source: Own elaboration based on the WEF (2018b).

Evolution of the GCI score for LAC, 2007–2017. GCI, Global Competitiveness Index; LAC, Latin American and Caribbean countries.
*Source*: World Economic Forum. The Global Competitiveness Index dataset 2007–2017.

Evolution of competitiveness in LAC across the 12 pillars. LAC, Latin American and Caribbean countries.
*Notes*: Only Hispanic LAC countries are considered.
*Source*: World Economic Forum. The Global Competitiveness Index dataset 2007–2017.

Table 2

GCI scores and countries’ ranks in the labor market pillar for the selected countries, 2018

	LAC		Peru		Colombia		Dominican Republic		Mexico		Brazil
	Score^*	Rank^**	Score	Rank	Score	Rank	Score	Rank	Score	Rank	Score	Rank
Objective data
Female participation in labor force	59.1	4	56.9	82	66.9	67	100	3	44.6	89	77.3	49
Labor tax rate	85.5	5	95.8	34	85.3	83	85.3	83	75.6	112	55.3	137
Redundancy costs	57.5	6	84.5	40	73.6	71	53.8	110	62.5	99	76.2	66
Workers’ rights	68.8	3	70.1	71	57.7	110	84.5	28	56.7	112	66	88
Subjective data
Active labor market policies	23.8	7	17.9	126	30.5	92	19	120	25.3	109	27.6	105
Cooperation in labor–employer relations	52.2	6	50.7	102	55.8	69	56.7	63	57	61	46.6	117
Ease of hiring foreign labor	54.7	2	52.5	63	51.2	71	53	60	55.3	48	40.6	122
Flexibility of wage determination	59.9	7	76.3	16	62.5	85	59	103	68.6	55	51.9	124
Hiring and firing practices	35.4	7	31.5	128	38.7	109	39.3	108	40.2	105	20.8	138
Internal labor mobility	60.6	2	65.6	24	64.4	33	68	17	66.4	22	29.2	138
Pay and productivity	40.6	6	42.5	96	42.5	97	42.3	98	45.1	82	39.5	113
Reliance on professional management	50.6	5	51.1	81	51.6	78	48.2	91	53.8	67	56.7	58
Pillar 8: Labor market	55.3	4	58.8	72	57.9	80	61.6	51	54.4	100	51	114

GCI, Global Competitiveness Index; LAC, Latin American and Caribbean countries; WEF, World Economic Forum.

* Average score of the LAC countries.

** The regional ranking includes East Asia, the Pacific, Eurasia, Europe, North America, LAC, Middle East, North Africa, South Asia, and Sub-Saharan Africa.

Source: WEF (2018b).

Notes: Ranking covers 140 countries. The rank position is based on the GCI score. If there is a tie among countries, the rank position is based on the raw value, which explains why the Dominican Republic ranks third in the first indicator despite it being in the frontier.

Table 3

Formalization policies in the selected countries

		Peru	Colombia	Dominican Republic	Mexico	Brazil
Regulatory environment	Deregulation in hiring and dismissal	1990s: Elimination of job security regulation; introduction of temporary contracts; reduction in severance payments; expansion of training and subcontracting schemes; weakening of collective bargaining institutions 2002: Supreme Court rules in favor of the reinstatement of workers dismissed unfairly	1990s: Elimination of the minimum term and extension of the maximum term of fixed-term contracts; introduction of temporary contracts; integrated wages; reduction in the cost of dismissing workers with indefinite contracts; expansion of training and subcontracting 2002: Increase in the maximum working day by 4 hours; reduction in severance payments 2010, 2012: Reduction of direct cost of hiring workers 2013: Social security contributions linked to weeks effectively worked	1990s: Increase in the cost of dismissal	2012: Introduction of temporary contracts; 2012: Introduction of temporary contracts; reduction in hiring and firing costs	1988: Increase in the minimum overtime pre-mium, in value of paid vacations, in cost of dismissing workers and in payroll taxes
Regulatory environment	Special employment regimes	2000, 2006: Agricultural promotion regime 2003, 2008, 2013: Micro and small enterprises employment regime
Incentives to formalize employment	Reduction in social security contributions for youth		2010: Social security contributions for youth are discounted from income tax 2016: Exemption of the contribution to the family compensation fund during the first year of employment for youth		2010: Subsidies for hiring youth who have never held a formal job	2000: Subsidies for the hiring of young interns
	Reduction in social security contributions for microentrepreneurs and/or SMEs				2014: Social Security Incorporation Regime (RISS)	1999: New law for SMEs 2008: Law on Individual Entrepreneurs (IME)
	Simplification of business registration for entrepreneurs		2016: Exemption for the mercantile registry and the first renovation for young entrepreneur companies	2016: Law on Entrepreneurship
Boost enterprise registration and creation	Simplified taxation regimes for MSEs and microentrepreneurs	2003, 2008, 2013: Promotion and formalization of Micro and Small Enterprises Act 2003: New Simplified Single Regime (RUS) 2004: Special Income Tax Regime (RER)	2000: Micro, Small and Medium Enterprise Law 2016: Simplified Tax Regime (Monotributo)	2007: Tax Simplification Procedure (PST) 2019: Simplified Tax Regime (RST)	2014: Fiscal Incorporation Regime (RIF)	1984: Microenterprise Statute 1988: New Federal Constitution, Art. 179 1996, 2006: Simplified Taxation System (SIMPLES) 2008: Law on Individual Entrepreneurs (IME)
	Single windows for enterprises	2007: Electronic payroll system	2006: Planilla Integrada de Liquidacion de Aportes (PILA)			2014: eSocial
	Simplification of business registration business		2008: Only business license required to operate 2012: Anti-Red Tape Decree legalization		2002: Rapid business start-up system (SARE)	2006: National Network for the Simplification of Registration and Legalization of Companies and Business (REDESIM)

[i] ILO, International Labor Organization; MSE, micro- and small-sized enterprises; SME, small- and medium-sized enterprises.

[ii] Sources: ILO (2014), Organización Internacional del Trabajo (OIT) (2015), and Salazar-Xirinachs and Chacaltana (2018).

Evolution of labor market performance in the selected countries, 2007–2017.
*Notes*: The series subjective is an arithmetic average of the indicators’ scores obtained with business leaders’ opinions.
*Source*: World Economic Forum. The Global Competitiveness Index dataset 2007–2017.

Table 4

Evolution of WEF’s sampling guidelines and Survey sample size for the selected countries, 2008–2019

Year	Sample frame lists	Definition of firm size	Average number of respondents	Number of respondents in the selected countries
Year	Sample frame lists	Definition of firm size	Average number of respondents	Peru	Colombia	Dominican Republic	Mexico	Brazil
	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)
2008	SMEs; large enterprises	Country-specific	91	84	128	61	73	180
2009	SMEs; large enterprises	Country-specific	95	89	235	61	154	181
2010	SMEs; large enterprises	Country-specific	98	86	195	43	94	168
2011	SMEs; large enterprises	Country-specific	98	88	137	54	354	185
2012	SMEs; large enterprises	Country-specific	100	83	286	91	278	143
2013	SMEs; large enterprises	Country-specific	94.7	85	204	56	320	98
2014	SMEs; large enterprises	Country-specific	92.8	85	162	62	340	114
2015	SMEs; large enterprises	Country-specific	98.6	91	162	77	311	197
2016	SMEs; large enterprises	Country-specific	102.8	88	158	78	304	128
2017	Micro and large enterprises, SMEs	<10, 11 −250, >251	95.9	90	134	54	291	103
2018	SMEs; large enterprises	≤249; >250	92.25	98	113	59	208	118
2019	SMEs; large enterprises	≤249; >250	97.5	112	117	61	161	231

[i] SME, small- and medium-sized enterprises; WEF, World Economic Forum.

[ii] Source: WEF (2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015b, 2016c, 2017, 2018b, 2019).

Table 5

The Survey and the country: percentage of firms with <100 workers in the selected countries, 2008–2019

		2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019
Peru	The Survey	2	9	12	16	–	–	–	–	–	–	–	–
	The country	98.4	98.4	98.3	98.3	98.3	98.5	98.4	98.4	98.4	98.0	99.1	98.4
	1–10	98.2	98.2	98.1	98.1	98.0	98.4	98.2	98.2	98.2	97.8	99.0	98.2
	11–100	0.2	0.2	0.2	0.2	0.2	0.2	0.2	0.2	0.2	0.2	0.1	0.2
Colombia	The Survey	52	43	43	49	–	–	–	–	–	–	–	–
	The country ^a	–	–	–	99.7	99.6	99.6	99.6	99.5	99.5	99.6	99.6	99.6
	1–10	–	–	–	94.5	93.6	92.9	92.7	92.3	92.2	93.0	92.7	92.7
	11–100	–	–	–	5.2	6.0	6.7	6.8	7.2	7.4	6.7	6.9	6.9
Mexico	The Survey	15	25	33	38	–	–	–	–	–	–	–	–
	The country	–	99.5	99.4	99.5	99.5	99.5	99.4	99.4	99.4	99.4	99.3	99.3
	1–10	–	94.96	93.92	93.80	93.75	94.09	93.84	93.78	93.69	93.58	93.57	93.48
	11–100	–	4.53	5.50	5.66	5.70	5.41	5.52	5.61	5.70	5.81	5.76	5.83
Dominican Republic	The Survey	49	46	1	26	–	–	–	–	–	–	–	–
	The country ^b	–	95.4	96.5	96.9	96.3	95.3	–	–	97.2	97.2	97.3	98.1
	1–10	–	66.4	70.1	71.5	69.9	70.6		–	74.1	73.9	74.3	76.0
	11–100	–	29.0	26.4	25.4	26.3	24.7	–	–	23.1	23.3	23.0	22.1
Brazil	The Survey	4	20	23	22	–	–	–	–	–	–	–	–
	The country ^c	99.1	99.2	99.1	99.1	99.1	99.1	99.1	99.1	99.0	99.0	98.9	99.2
	1–10	88.9	88.9	88.8	88.1	87.9	87.9	87.1	86.7	86.6	86.1	85.3	87.9
	11–100	10.2	10.2	10.3	11.0	11.2	11.2	12.0	12.3	12.5	12.9	13.6	11.3

Note: “-” Information not available.

a The classification of firms by number of workers is 1–10, 11–50, and 51–200. Thus, the row 11–100 contains firms that have between 11 and 200 workers.

b For 2008–2018, the classification of firms with <100 workers is 1–9 and 10–99; for 2019, the classification is 1–10 and 11–150.

c The classification of firms with <100 workers is 0–9 and 10–99.

Source: WEF (2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015b, 2016c, 2017, 2018b, 2019) for the Survey. Official sources have been used to retrieve the business structure in the selected economies: Ministeriode la Producción (by request) for Peru; Confecámaras (by request) for Colombia; Directorio Estadístico Nacional de Unidades Económicas (DENUE) for Mexico; Directorio de Empresas y Establecimientos for the Dominican Republic; Estatísticas do Cadastro Central de Empresas (CEMPRE) for Brazil.

Table 6

Questionnaire of the Survey’s labor market pillar

Indicator	Question (“In your country...”)	Answer
1. Hiring and firing practices	To what extent do regulations allow for the flexible hiring and firing of workers?	1 = not at all 7= to a great extent
2. Cooperation in labor–employer relations	How do you characterize labor–employer relations?	1=generally confrontational 7= generally cooperative
3. Flexibility of wage determination	How are wages generally set?	1= by a centralized bargaining process 7= by each company
4. Active labor policies	To what extent do labor market policies help unemployed people to reskill and find new employment?	1= not at all 7= to a great extent
5. Ease of hiring foreign labor	How restrictive are regulations related to the hiring of foreign labor?	1= highly restrictive 7= not restrictive at all
6. Internal labor mobility	To what extent do people move to other parts of the country for professional reasons?	1= not at all 7= to a great extent
7. Reliance on professional management	Who holds senior management positions in companies?	1=usually relatives and friends without regard to merit 7= mostly professional managers chosen for merit
8. Pay and productivity	To what extent is pay related to employee productivity?	1= not at all 7= to a great extent

[i] Source: World Economic Forum (2018b)

GCI score range, 2017–2019. LAC, Latin American and the Caribbean countries.
*Notes*: Score in 2017 is a backcast edition with methodology GCI 4.0.
*Source*: Data for 2018 come from The Global Competitiveness Index (GCI) data set 4.0 2018, and data for 2019 come from the World Bank GCI 4.0: Global Competitiveness Index 4.0.

Table A1

GCI labor market scores in 2007 and 2017

	Overall			Subjective
	2007	2017	∆	2007	2017	∆
Peru	4.12	4.27	0.32	4.31	3.89	–2.87
Colombia	4.25	3.98	–0.58	4.56	3.73	3.12
Dominican Republic	4.13	3.62	–1.19	4.73	3.56	2.14
Mexico	4.09	3.77	–0.74	4.56	3.92	1.82
Brazil	3.96	3.68	–0.65	3.98	3.36	2.35