Creating

22 DOING BUSINESS IN 2006
TABLE 4.1
Where is hiring and firing easy—and where not?
Easiest
Most difficult
Hong Kong, China
New Zealand
United States
Singapore
Uganda
Switzerland
Namibia
Australia
United Kingdom
Denmark
Portugal
Congo, Rep.
Mali
Greece
Romania
Spain
Sierra Leone
Togo
Niger
Burkina Faso
Note: Rankings on the ease of hiring and fi ring are the average of the country rankings on
the diffi culty of hiring, rigidity of hours, diffi culty of fi ring, cost of hiring and the cost of fi r-
ing indices. See the Data notes for details.
Source: Doing Business database.
come hard. In Germany the 2004 changes to unemployment
benefits were 11 years in the making. The Dutch
government reached agreement on labor reforms with
labor unions and business organizations in 1982 only
after 9 years of failed talks. In Peru the government’s
attempt to reduce severance payments by 50% in 1996
caused an uproar. The government made a hasty withdrawal.
And severance payments were increased.
Opponents of reform argue that because developing
countries lack social safety nets, they need more rigid
rules on hiring and firing. But social security taxes are
nearly universal. Only 10 countries don’t levy such taxes:
Afghanistan, Bhutan, Cambodia, Lesotho, Malawi, Namibia,
New Zealand, Timor-Leste, Tonga and the United
Arab Emirates. Bosnia and Herzegovina has the world’s
highest—for every $100 a worker earns, her employer
pays $41 in social security taxes. On average, rigid employment
regulation is not associated with lower taxes
to cover for the risks of unemployment and sickness and
for old-age pensions. 1
The countries of Eastern Europe and Central Asia
have the highest social security taxes (figure 4.2). West
African countries also pay high taxes—19% of wages
in Burkina Faso and Togo, 18% in Benin and Senegal.
These rates exceed those in Denmark (1%), Iceland
(12%) and Norway (14%). Of course, both African and
Nordic countries have other taxes, as reported in chapter
8 on paying taxes. But even when all these are added up,
a business in Benin or Togo still has to pay more taxes
overall than a business in Denmark or Iceland.
In 2004, 2 reforms met less resistance and have
increased labor market flexibility. First, making work
hours more flexible, as in Serbia and Montenegro. And
second, using apprentice contracts as a way to increase
employment among first-time workers. Burkina Faso
introduced such contracts in 2004. Still, Sub-Saharan
Africa accounts for a large share of the countries with
the most rigid labor regulations (table 4.1).
Who is reforming?
Eastern European and Central Asian economies led the
way in reforming labor markets in 2004. Armenia, Georgia
and Serbia and Montenegro reformed employment
regulation. And in July 2005 FYR Macedonia adopted a
new labor law. The reforms have 2 features in common.
First, they make work hours more flexible, by allowing
longer overtime and permitting businesses in cyclical
industries to shift work hours between slow and peak
seasons. Second, they reduce the administrative burdens
on dismissals of redundant workers.
The new labor code in Serbia and Montenegro allows
employers to redistribute work hours across seasons
or from periods of slow demand to peak periods.
This reform put the country on the top 10 list for the
most flexible regulation of work hours (table 4.2). In
Poland work hours must balance out within 6 months.
In Hungary, within a year. Such reforms make overtime
hours more predictable for employees while reducing
the costs of unpredictable or cyclical demand for businesses.
In 2004 Georgia reduced the notice period for
redundancy dismissals from 8 weeks to 4 and suspended