SPECIAL ARTICLE

The Employing Workers Index

A Critique and Review
Sukti Dasgupta

This article reviews a prominent index in ongoing

debates concerning labour regulations, the World Banks
Employing Workers Index. Drawing on research and
studies on the EWI and its economic impact, it addresses
three interrelated issues. First, the rationale behind
labour regulations and labour standards and their
evolution over time. It argues that these regulations and
standards are as relevant in todays world as they were in
the past. Second, the paper reviews the methodological
basis of the EWI and its scope in interpreting the
economic impact of labour regulations. Third, it argues
for moving beyond indicator-based rankings, to develop
a better understanding of the complex interactions
between different labour market institutions and the
impediments to effective implementation of labour
norms. In this context, the paper provides some insights
into the limitations of the current labour regulatory
framework in India in protecting workers rights.

The author is grateful to Sangheon Lee and Sher Verick for suggestions
and comments, and to Marko Stermsek for assistance with research. An
earlier version of this paper was presented at the Indian Society of
Labour Economics Annual Conference in New Delhi in December 2013
and the author is grateful for comments and suggestions from participants at the conference. Responsibility for opinions expressed in this
paper rests solely with the author and does not constitute an
endorsement by the International Labour Organisation.
Sukti Dasgupta (suktid@gmail.com) is senior economist, and head,
Regional Economic and Social Analysis Unit, Regional Office for Asia
and Pacific, ILO.
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1 Introduction

here has been much interest in the impact of labour

regulations on economic performance in India leading
to much debate. Critics argue that labour laws impose
undue burdens on employers that make it difficult to hire or
dismiss workers in response to market signals, thus slowing
investment and employment growth, while increasing informal employment (Besley and Burgess 2004). The World Bank
(2010) noted that India is one of the most restrictive countries
in the world in terms of regulations governing retrenchment
and layoffs (World Bank 2009: 120), leading to calls for
greater flexibility in hiring and firing regulations.
The call for labour market flexibility, however, is neither
particular to India nor is it new. In the current era of globalisation, as countries vie to be competitive they clamour for
greater flexibility in the labour market. Standing (1999), in his
book on global labour flexibility, examines the different types
of flexibility: that in the numbers of people employed, in provisions for job security, in limits to working hours and in remuneration. Numerous articles, both supporting and rejecting
flexibility, have been written in the context of advanced countries, with the call for flexibility often being led by international organisations such as the Organisation for Economic
Co-operation and Development (OECD), and the the International Monetary Fund (IMF) (see for example, OECD 1994
and IMF 2003).1
In developing countries, the debate has been led by the
World Bank especially with the publication of its Doing
Business Index (DBI) since 2004, which included an Employing Workers Index (EWI) as a composite feature up to 2010.
The DBI ranks countries on the ease of doing business a composite index of 10 different regulatory areas. Its aim is to provide objective measures of business regulations and their
enforcement (www.doingbusiness.com). As noted by the
authors of the Index, publishing such comparative data inspires
governments to reform. Indeed, the DBI and the EWI have been
influential in promoting deregulation as a policy agenda, both
implicitly and explicitly (Lee 2012). The 2008 Doing Business
Report, which ranked 178 countries, stated that more flexible
labour regulations boost job creation (World Bank 2008a: 19).
Since its inception, Doing Business has inspired or informed
113 reforms around the world (World Bank 2008a: 7), conforming to its stated objective of advancing the World Bank
groups private sector development agenda in four ways: to
motivate reforms through country benchmarking; to inform
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the design of reforms; to enrich international initiatives on

development effectiveness; and to inform theory.2
In this context, it is useful to recall that labour regulations
and labour standards emerged out of specific needs and with
specific aims: to create a level playing field between workers
and employers and to balance an otherwise unequal relationship with the ultimate objective of promoting social justice
(Berg and Kucera 2008). The history of labour regulations and
labour standards is also closely tied to the International
Labour Organisations (ILO) history, since its earliest days in
1919 as a labour commission with the mandate to elaborate
a scheme for world labour regulation. Standard setting has
thus formed an integral part of the ILO agenda and its many
Conventions and Recommendations have stood to provide
guidelines for national labour regulation and legislation
with the aim of protecting workers and providing dignity at
work and Decent Work for all women and men.3 These standards are periodically reviewed and revised to reflect changes
in the workforce and workplace, so that they are relevant,
useful and capable of responding to the needs of the world
of work.
Issues surrounding the unequal relationship between
employers and workers are as important in todays world, as
they were at the beginning of the 20th century, when the ILO
was established. Indeed the vulnerability of workers in todays
developing countries especially during a time of fiscal austerities and cost cutting for competitiveness remains acute.
As Assous and Dutt (2013) note, the balance of power between
labour and capital has become less favourable to the worker.
The ILOs Global Wage Report (2013) illustrates that the labour
share of income has fallen substantially across the world,
over the past two decades. Furthermore, industrial models
rooted within global value chains, the growth of the service
sector, informal employment and various flexible forms of
work with no clear employer-employee relationship have
served to create challenges for the achievable scope of labour
regulations especially in developing countries exposing
workers further.
Although the positive externalities labour laws bring about
are often difficult to quantify, the central importance of labour
institutions for underpinning economic activity is both widelyheld and well-established. There are several studies that argue
that well-designed labour regulations can enhance economic
goals by improving economic efficiency as well as building
positive institutions and externalities for workers and employers alike. Deakin et al (2007: 143) refer to labour laws dual
role in redistributing resources while enhancing efficiency.
Labour regulations can lower the transaction costs and risks
between employers and workers by creating a common understanding and a tractable legal framework (Collins et al 2000).
Regulations can compensate for informational asymmetries
(such as those noted in Stiglitz 2002); reduce transaction costs
derived from clearly defined and enforceable employment
contracts (Williamson, Wachter and Harris 1975); improve
coordination or collective action, allowing efficient rules to
emerge more spontaneously (Hyde 2006); and enhance labour
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productivity (Collins et al 2000; Buchele and Christiansen

1999); promote technical and managerial innovation rather
than competition on the basis of poor labour conditions and
low wages (Lee et al 2008).
The present paper reviews the World Banks EWI and its
prominence in ongoing debates over labour regulations and
their economic impact, drawing on research and studies that
use or criticise its basic tenets. The paper critically reviews the
evolution of the World Banks thinking on labour regulations
and jobs, the continuing influence of the EWI, and its implications for developing countries such as India.
2 Quantifying the Employment Effects
of Labour Legislation

The literature on the regulatory environment and economy is

vast. Perhaps the most common approach employed for quantifying the economic impacts of labour laws, is through leximetrics, which assigns quantitative values (binary or otherwise) to
qualitative indicators in order to code entire laws or legal
frameworks into data. It enables institutions to be evaluated in
relation to other quantitative variables, including GDP growth,
employment and productivity, usually using cross-section country data. The specific research need and the specific policy orientation drive the way the legal or institutional variable is evaluated and analysed. Assigning a quantitative value to a qualitative indicator is subjective and an ambiguous or misleading
measuring can lead to wrong normative recommendations and
unwanted outcomes (Beneditinni and Niccita 2010).
The World Banks EWI is one such leximetric approach. The
EWI is a composite of three sub-indices: the difficulty of hiring,
the rigidity of hours, and the difficulty of firing. In addition,
there is an indicator for the firing cost and the non-wage labour
cost that measures all social security payments (including retirement funds; sickness, maternity and health insurance; compensation for workplace injury; family allowances; and other
obligatory contributions), expressed as a percentage of workers salaries. The worker is assumed to be a full-time male
employee with 20 years of work tenure (revised to five years
since 2011), earning an amount equal to the national average
wage, is not a trade union member (unless this is mandatory),
has a wife and two children, and is law-abiding. The employing
business is assumed to operate in the manufacturing sector
and employ 201 employees (revised to 61 since 2011), is a limited liability company that is domestically owned and subject to
collective bargaining agreements in countries where at least
half of the manufacturing sector is covered by such agreements.
The methodology used in the EWI was based on a study by
Botero et al (2004), who examined regulatory laws in 85 countries relating to employment, collective relations and social
security. They found that more stringent labour regulations
and more generous social security benefits were correlated
with higher unemployment, lower labour force participation
and weaker growth. They also concluded that regulatory
frameworks were conditioned on the countrys legal origins.4
The Doing Business reports recognise that its rankings do
not tell the whole story since the overall composite indicator
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is limited in its scope and fails to take into account the underlying strength of a countrys institutions. Still, it notes that a
high ranking on the ease of doing business does mean that the
government has created a regulatory environment conducive
to operating a business (World Bank 2008a: 27).
According to Doran et al (2013), between the publication of
the first Doing Business report and 2013, some 1,245 articles
have been published in peer reviewed journals using the data
from the report, analysing causality and the effects deriving
from institutional change. This highlights the popularity of
the index worldwide and makes a strong defence of the index,
overall, arguing that the data it provides are transparent and
have been critical in enabling researchers to advance understanding of the relevance and importance of the domains covered by business regulation. They go on to state that numerous
examples show that key policymakers, even heads of state, in
countries of all types pay attention to the core messages of
Doing Business which capture laws and regulations as they
exist, and therefore provide an immediate route towards
designing actionable reform.
Indeed the influence of the Doing Business reports, and in
particular the EWI, has been far-reaching. Lee et al (2008) provide an excellent review of the international literature using
the EWI or a similar methodology. As the authors point out,
such studies have argued that stricter labour regulations have
a strong negative employment effect. The results indicate one
or more of the following increased unemployment, reduced
productivity growth, reduced GDP growth, increased poverty
incidence, increased inequality, increased informality and
negative employment effects on young, uneducated and rural
workers (see, for example: Micco and Pags 2004; UNDP 2004;
Schiantarelli 2005; Dajankov, McLiesh and Ramalho 2006;
Czegldi 2006; or Heckman and Pags 2004). Basu and Maertens (2007) used this methodology for India to argue that labour regulations constitute one of the main barriers to further
economic growth. This vast volume of empirical literature during the last decade has certainly been influential in making the
case against labour regulations, per se.
There are, however, many scholars who have criticised the
conceptual, methodological and empirical standings of the DBI,
in particular the EWI, which this paper focuses on. The ILO has
been critical of the EWI methodology a detailed analysis of
which can be found in Berg and Cazes (2007), Lee and McCann
(2008), Lee et al (2008), Lee (2012), McCann et al (2013).
3 Critique of the EWI

The premise of EWI is that the more rigid the labour regulations,
the greater the negative effect on productivity and employment
(Lee et al 2008). This viewpoint does not take into consideration the positive externalities of labour regulations in correcting
existing asymmetries in the labour market, nor its social objectives of ensuring social justice and improving the quality of life
of workers and their families (Berg and Cazes 2007). Seven of
Doing Businesss 10 indicators, including the EWI, presume that
lessening regulation is always desirable, whether a country
starts with a little or a lot of regulation, and irrespective of their
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benefits.5

potential
As Deakin, Lele and Siems (2007) state, the
current state of knowledge on the workings of labour regulations does not support the hypothesis that deregulated labour
markets improve economic performance.
The legal origins6 hypothesis which informs the methodology of the Doing Business indicators has been critiqued by
Deakin (2011), where he illustrates that regulatory frameworks
of the same legal origins can have very different economic outcomes. Furthermore, many labour regulations are endogenous
to a legal system and determined by social norms of what is
just and fair (Berg and Kucera 2008).
The DBI uses cross-country data to rank countries, which is
then used to give policy advice to individual countries labour
regulatory systems. Yet, as noted by Chor and Freeman (2005),
it is more instructive for policy purposes to examine time series data for countries, industries and enterprises to understand the economic impact of labour regulations and be able to
design appropriate policies.
A number of problems with the methodology and measurement of the EWI, as well as the interpretation, have been
pointed out by scholars:
(a) There are problems with the definition of the worker and
the employer as used in these indexes, which induces selection bias, including a gender bias (Berg and Cazes 2007).
These assumptions in the DBI do not represent the majority of
workers, or businesses, in most developing countries. Following criticism, some changes were made in the assumptions of
length of tenure and size of employing business as noted
above, but problems remain. The assumed worker size of firms
is not typical in the context of many developing countries.
(b) Of particular concern is the way minimum wages are
treated and quantified in the EWI. The ratio of minimum wage
to value added per worker is converted into a score on a fourpoint scale 0, 0.33, 0.67 and 1. It is 0 if the ratio is less than
0.25, while it is 1 if the ratio is greater than 0.75. These scores
are then added to scores on Working Time and Employment
Protection to construct the EWI, normalised between 0 and 100.
The higher the score on the EWI, the more rigid the labour market is, which in turn is taken to imply inefficiencies. In other
words, the lower the relative value of the minimum wage
indicator, the better the labour market performance, which is
unsubstantiated by the economic literature (Lee 2012).
(c) The interactions as well as trade-offs between different
types of labour regulations are not taken into consideration
for example, there may be a trade-off between the strictness of
Employment Protection legislation and size of benefits.
(d) The Doing Business indicators note that they comply with
four of the ILOs labour standards that are relevant for the EWI.
These are conventions relating to termination of employment,
weekend work, holiday with pay and night work. It is further
noted that the EWI does not relate to the ILO Core Conventions
which are the eight conventions relating to right to organisation and collective bargaining, equal treatment, elimination of
forced labour and child labour. But as noted by Berg and Cazes
(2007) labour standards need to be seen as a package that is
mutually supporting. Furthermore, some of the worlds most
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notorious violators of Core Labour Standards feature among

Doing Businesss best performers under the category Employing Workers (Global Trade Unions, p 17). Also, Georgia was
mentioned as a model of deregulated labour markets in the
Doing Business Report of 2008 while its labour code was criticised by the ILO for its lack of worker protection and its restrictions on the voice of trade unions. The same report by Global
Trade Union also notes that countries like Afghanistan, Haiti,
Georgia, Mongolia and Papua New Guinea that have deregulated labour markets do better in the index than some of the
Nordic countries, the Republic of Korea and Taiwan, even
though the former fare much worse in terms of employment
creation and worker productivity.
(e) Labour law scholars have also criticised the EWI for focusing on statutory standards only, and neglecting functional
equivalents, which could be bargained norms (Aherling and
Deakin 2005).
(f) The focus on a de jure approach only, using a limited set of
indicators is problematic. As is well known, often there is great
variation between the de jure and de facto, especially in developing countries. Lee and McCain (2008) develop an index of
effective regulations using both the de jure and de facto situations and find considerable variation between what is legislated, and what is observed. Chor and Freeman (2005) found
no correlation between the EWI and an index they developed
on de facto application of labour regulations.
(g) While many of these studies using the DBI and EWI make
causal claims about the impact of labour regulations or regulatory reform in economic performance, labour regulations need
to be considered along with a rather larger set of variables
that affect economic performance. Many other factors affect
macroeconomic outcomes, and the direction of causality between regulation and economic outcomes is difficult to isolate.
Furthermore, since regulations generate social benefits as well
as private costs, what is good for an individual firm is not necessarily good for the economy or society as a whole.7
(h) The EWI rankings use different sub-indicators to create one
composite indicator which has potential problems (Hayland et
al 2009). This is particularly so when the rankings of the different indicators vary substantially. Relatively small reforms, or
changes in the rankings of the sub-indicators, can lead to big
jumps in the ranking of the composite EWI indicator. They note
governments may design policies more to improve their rank
on the index than to improve their real performance (p 3),
which Lee et al (2008) describe as rank seeking.
4 World Bank Suspends EWI, But Others Continue Its Use

The World Banks watchdog, the Independent Evaluation Group,

carried out an evaluation of the Doing Business Report in 2008
that raised several questions on its concept, methodology and
empirics. With regard to the EWI, the evaluation noted that the
indicator is consistent with the letter of relevant ILO conventions, but not always their spirit, insofar as it gives lower scores
to countries that have chosen policies for greater job protection (World Bank 2008b: xvi). It also noted that the EWI does
not cover some critical areas of labour standards (such as
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union rights, child labour, etc). It recommended increasing

the number of informants and sources for each indicator. It
also noted that the scope of the DBI and the EWI be better
recognised and understood as indexes based on a limited set
of indicators measuring changes in regulatory burden though
not ideal for policy reform of the business climate, which
would necessarily have to include many more factors.
In 2012 the new president of the World Bank, Jim Yong Kim
appointed an independent panel headed by South Africas
Trevor Manuel to review the indicators. The panel recommended that the overall composite index be discarded in
favour of sub-indexes and that any correlation between changes
in Doing Business indicators and changes in an economy are
necessarily tenuous, as economic changes are likely to be the
result of a complex interaction of variables over time that may
or may not include the indicators presented in the report. The
panel advised against using the DBI for policy advice and recommended that the methodology of the EWI and the Paying
Tax index be reconsidered. The panel supported the suspension of the ranking of EWI, as it provides a one-sided view of
regulations and could encourage governments to engage in
major deregulatory reforms to move up the ranking (p 34).
Early criticisms of the EWI led to the setting up of a consultative group to review it in 2009. Following the recommendations
of the consultative group, the World Bank suspended the use of
the EWI in the overall Ease of Doing Business index from 2011,
barred the ranking of this index (i e, the EWI) and advised its
staff not to use this index for policy advice (World Bank 2009).
These directives and the panels recommendations as noted
above also urge caution in the use and interpretation of the
various studies based on the EWI, or the methodology of the
EWI, which have contributed to the view that labour regulations
have a negative effect on the economy and on employment.
The EWI, however, continues to be included in the annex of
the Doing Business Report.
These criticisms of the DBI, however, do not imply criticism
of the leximetric approach as such. The pertinent question is
how best indicators can be constructed and applied to empirical analyses. Deakin and Sarkar (2011) develop legal indicators
which provide a useful snapshot of the regulatory environment, as does OECDs revised Employment Protection Legislation indicators.
However, the EWI seems to have been included in recent
databases. The Fraser Institutes Economic Freedom of the
World Database, includes a sub-component on labour flexibility
based on the EWI namely (i) the minimum wage, (ii) mandated
cost of hiring and (c) mandated cost of worker dismissal. In a
detailed study, Aleksynska (2014) notes that the minimum
wage sub-component, is almost exactly the World Banks
difficulty of hiring index. This was replaced by the hours
regulation sub-component which is the World Banks rigidity
of hours index. The mandated cost of the worker dismissal
sub-component is based on the World Banks cost of advance
notice requirements, severance payments, and penalties due
when dismissing a worker. Using this data Bernal-Verdugo
et al (2012a, 2012b), Criveli et al (2012) and Furceri (2012)
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(all IMF staff working papers) find that more flexible labour
markets are associated with lower rates of unemployment.
Thus, notwithstanding the suspension of the EWI by the
World Bank, the index continues to be used in a somewhat
different form and under a different name to promote the
deregulation agenda.
5 A Shift in the World Banks Thinking

The 2013 World Development Report of the World Bank entitled

Jobs, however, shows a shift in the Banks thinking on jobs
and on regulations. It recognises that jobs are the cornerstone of an economy. It notes too that a careful review of the
actual effects of labour policies (by labour policies they are referring to active labour market policies and labour regulations) in developing countries yields a mixed picture: most
studies find that impacts are modest certainly more modest
than the intensity of the debate would suggest. It goes on to
say that in most countries that have been studied, job security
rules and minimum wages have a small effect on aggregate
employment. In sum, the report notes that labour policies and
institutions can improve labour market information, manage
risks and provide voice, but these advantages can come at the
expense of labour market dynamism and reduced incentives
for job creation and job search. Thus, while the World Development Report 2013 does acknowledge the positive externalities
of labour regulations, it notes the negative outcomes on economic growth and employment, in line with its traditional
thinking (World Bank 2013: 27)
The Jobs report proposes a somewhat nuanced approach to
labour regulations a framework of a plateau, with cliffs on
both sides each cliff representing too little, or too much labour regulation both with potential negative impacts. On
one end of the plateau is the absence of mechanisms for voice
and protection, and on the other are labour policies, meaning
labour regulations that slow job creation and economic
growth. In this context, the report notes this is not necessarily
an argument for minimum regulation (p 27).8
The report states that, In India, complex and cumbersome
labour market institutions have unambiguously negative
effects on economic efficiency, but at the same time, widespread non-compliance has been the dominant response to
cumbersome labour regulations (p 37). As Verick (2013)
rightly questions, where does this place India in the context of
the plateau?
The Indian debate has concentrated on the Industrial Disputes Act (IDA) and its rules governing employment termination (which requires permission from the labour commissioner
to fire a worker for an enterprise that employs more than 100
workers) and the regulations governing the use of contract
workers as stipulated in the Contract Labour (Regulation and
Abolition) Act on the one hand, and the lack of enforcement of
labour regulation on the other.
The case for deregulation for India, in the context of the
IDA has been the subject of many studies, most notably that
by Besley and Burgess (2004). Bhattacharya (2006) has contested this view by highlighting flaws in the methodologies
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used in the study. Research by the World Bank in India based

on the DBI and EWI has concluded that Indian labour laws
are atypically restrictive in terms of hiring and firing
(World Bank 2010: 120).
The OECD indicators on the strictness of employment protection legislation (EPL), do not support this contention, as noted
in Cazes and Verick (2013). These indicators assign scores from
0 (least strict) to 6 (most strict) within four separate categories: protection of permanent workers and of temporary
workers against individual dismissals and against collective
dismissals aggregated using different weights. India scores
(2.6) on the EPL scale, which is higher than the OECD average
(of 2.2), but it is still lower than that of other large Asian countries, including China and Indonesia. Brazil and South Africa
present with less strict regulations than India, while other
fast-growing countries (including Argentina, Mexico and
Turkey) appear to be more strict, de jure.
Another recent discussion in the context of labour regulations relates to the informal economy. It has been suggested by
Teamlaese (2007) and Basu and Maertens (2007) that the rigid
hiring and firing implications of the IDA have driven employers to
look for more flexible forms of employment leading to the large
informal sector. Another study, Chaurey (2013), finds evidence
that firms in India circumvent labour laws by hiring workers
indirectly through contractors in the face of economic fluctuations. At the global level Maloney and Bosch (2007) noted that
a substantial body of literature sees the size of the informal
sector to be determined substantially by regulatory distortions
or corruption (p 121). Yet, as Kucera and Roncolato (2008) note,
the empirical studies support the view that high informality is
a negative outcome of poorly designed and poorly implemented regulations rather than regulatory distortions per se.
It is worth noting that there has been a rise in contract workers
in registered manufacturing in India since liberalisation
(Deshpande et al 2004). Papola (2013) has also pointed to this
disturbing trend in industry. From ASI data we see that between 1999 and 2010, the share of contract workers in organised manufacturing increased by 9.3 percentage points to
account for 32% of the total share of industrial workers, while
the share of directly employed workers increased by only 2%.
The latter shows an increasing trend of informalisation in the
formal sector through the use of contract labour whose working conditions are considerably poorer, and the Contract
Labour Regulation Act is normally disregarded (Sundar 2012).
Nagaraj (2007: 7) has further provided evidence that that in
registered manufacturing industry in India, unit labour costs have
declined, union voice has declined and days lost due to lockouts have been greater than days lost due to industrial strikes.
Ongoing ILO research on small and medium enterprises and
the regulatory framework in India finds that the owners of
small and micro enterprises find ways to avoid compliance with
the regulatory system, but the trend differs across states. Furthermore, though an issue, labour regulation is not the primary
worry the main concerns relate to access to land, credit and
skilled labour, tax, infrastructure and corruption. In sum, labour
regulations possibly have an impact, but they are unlikely to be
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a serious factor driving labour market outcomes, even in the

manufacturing sector in India (Kannan, forthcoming).
But where does this presumably strict labour regulation (i e,
the IDA chapter 5b) along with the non-compliance/avoidance and non-enforcement of labour laws; a growing share of
contract workers; and a large informal economy that is outside
the purview of labour laws place India in the World Banks
framework? With four out of every five workers in India not
covered by labour regulation, indeed the labour market in
India, in practice, is not effectively regulated. The challenge is
to understand the drivers of regulatory indeterminacy in
the context of accelerating fragmentation of labour markets
into diverse forms of employment and employment relationships, such as informal employment and contract labour, the
complex interactions between different labour market institutions and the impediments to effective implementation of
labour norms ( Lee and McCann 2013).
6 Conclusions

The World Banks Doing Business Index and in particular

its Employing Workers Index has been influential in setting
the terms of the debate on the economic impact of labour
regulations, especially for developing countries. This led to a
flurry of articles using the EWI data and methodology to
argue for greater deregulation in the labour market. Several
scholars have pointed to shortcomings of the EWI and its
policy orientation and argued that the economic effects of
labour law reform are a priori indeterminate. The main concerns relate to the possibility of misinterpretation of the numerical ranking, which is based on a selective and limited set
of indicators; the emphasis on the de jure; the potential bias
in addressing only the costs and not the benefits of regulation; and the underlying belief that less regulation is always
better for economic outcomes.
The critique of the EWI resulted in it being dropped from
the overall DBI since 2011 but it continues to attract attention,
and continues to be used elsewhere. A series of papers by
the IMF in 2012 arguing for greater labour market flexibility
for reduced unemployment using an index similar to the EWI

Notes
1

2
3

The OECD in its 1994 Jobs Strategy argued for

deregulation in labour markets for increased
growth and employment. The IMF in 2003
called for deregulation in the European labour
markets to cut unemployment by a third.
World Bank (2008b), p 1.
These regulations and standards have evolved
over a long period of time reflecting social
norms of what is fair and just, in changing
social and economic circumstances. They are
backed by a supervisory body, the ILO Committee
of Experts on the Application of Conventions
and Recommendations (CEACR), which is
mandated to provide guidance to states on how
to properly apply ratified conventions within
their national contexts. Even though there are
no hard enforcement mechanisms as such,
other than moral suasion, there are a number of
procedures in place designed to compel states
to bring their laws and practices into compliance with ratified conventions, particularly in

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has shown that it still drives policy recommendations, even

though the World Bank has suspended its use in the DBI.
An indicator based framework with a specific policy orientation associated with the policy agenda of the Washington
Consensus thus persists. As Deakin (2009) writes: theory
and ideology will continue to frame both the production of
empirical data and the application of research findings to
policy issues (p 1).
The World Banks position on labour regulations, on the
other hand, shows change. Its 2013 World Development Report,
takes a more nuanced approach to labour regulation and argues
in favour of good jobs for development. It also argues for a
combination of active labour market policies and labour regulations but notes that such policies should avoid distortionary
interventions. This is certainly a change, albeit a cautious one.
The report recognises the positive externalities of labour regulations but warns against their possible negative economic and
employment effects in line with its earlier, more traditional
thinking. But its framework of plateaus and cliffs presents
fresh thinking on moving beyond regulation and deregulation
and instead focusing on the effectiveness of regulations. Nonetheless, it remains unclear how some of this would translate
into policy advice and how much regulation and intervention is deemed right or when does it go over the cliff.
Indeed, laws exist but are seldom enforced, or complied
within many developing countries, including India, and many
workers remain vulnerable, with diverse employment relationships, and without protection. Moving beyond indicator
based rankings, the question is how to reform the regulatory
framework to improve the effectiveness of labour regulations,
and ensure protection for the many that are currently not covered. What are the complex institutional interactions between
the regulatory system and other institutions such as the social
protection system? How can the impediments to effective
implementation be dealt with? Such questions call for serious
study and a review of the entire labour market regulatory
system with a view to re-regulating not deregulating
the labour market to ensure social justice and decent work for
all women and men.

cases of long-standing and serious violations of

the latter.
Their theoretical premise was that the main
factor explaining different types of regulatory
systems is legal origins, that is, whether the
country has a civil law system or a common
law system, inherited from its colonisers. Under
this theory, the historical origin of a countrys
laws shapes the origin of labour and other
markets (p 1340). They find little evidence for
their efficiency market hypothesis that
regulations come about in response to market
failures or for the political power hypothesis.
For the latter they note that political power of
the left is associated with greater regulation but
that it is not the main factor explaining legal
systems in countries. Labour regulations, in
this framework, are considered to be exogenous
(i e, determined by countries legal origins).
This was also pointed out by the World Banks
Independent Evaluation group. They note:
Reform as measured by the DB indicators
april 26, 2014

6
7
8

typically means reducing regulations and their

burden, irrespective of their potential benefits
(World Bank 2008b, page xv).
This legal origins hypothesis is the basis of
Botero et al (2004), as noted earlier.
This point was also noted by the Independent
Evaluation Group, 2008.
This new approach has been endorsed by
the Independent Review Panel reviewing the
Doing Business Indicators. The panel noted
that appropriate levels of regulation can be, as
the Banks 2013 World Development Report
points out, within a plateau (range) of levels
and types of regulation. The panel also recognises the emphasis on the World Development
Report 2013 on the need to comply with the
International Labour Organisations core labour
standards, which include the elimination of
discrimination in the workplace, elimination of
forced or child labour, freedom of association
and the right to collective bargaining (Independent Panel Report, 2013, p 25).
vol xlIX no 17

EPW

Economic & Political Weekly

SPECIAL ARTICLE

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