A United Nations agency is slamming a flawed set of indicators produced by the Vancouver-based Fraser Institute and used by the International Monetary Fund to advance a faulty conclusion that less labour market regulation may help reduce unemployment.
The Geneva-based International Labour Office (ILO), governed on a tripartite basis by governments, employers and labour, is reporting "serious flaws" in four recent IMF papers, based on their use the data from the Fraser Institute's "index of labour market flexibility" and "in the way they are used."
The Fraser Institute's index is part of the right wing think tank's "Economic Freedom of the World" database.
In her critique of the IMF publications, ILO economist Mariya Aleksynska points out the Fraser Institute's index of labour market flexibility is itself based mainly on the World Bank's Employing Workers Index. However, the World Bank suspended use of the index in 2009 and told its staff not to use it because of major conceptual flaws.
Flaws included the use of opinion surveys of employers to judge the degree and impact of labour market regulation. For example, rather than look at the level of the minimum wage in relation to other economic variables, employers were asked what they thought about the level of the minimum wage.
Also, the index is heavily skewed to regulation over hiring and firing of workers, which gives too much weight to one dimension and ignores the wider social and economic context in which regulations are applied.
As the ILO paper notes, the World Bank's World Development Report in 2013 argued that high quality labour regulation is not the least regulation, but rather regulation that "balances the need to provide fair treatment and economic security of workers with the employment adjustment possibilities of firms."
Well-known for their high quality research on labour market issues, the ILO also notes methodological breaks in series are interpreted as reform processes.
"When these breaks in series are accounted for, the majority of reforms identified" in two of the papers "cannot be replicated." Further, the methodology of identifying reforms from the data employed in another one of the papers "does not capture actual reform processes and ignores the scope and the size of the reforms.
"Taken together, our findings call into question most of the empirical results of these papers and policy advice based on them," the report concludes.
We eagerly await a more balanced approach from the Fraser Institute.
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