Creating

80 DOING BUSINESS IN 2006
a procedure. If a procedure can be accelerated for an additional
cost, the fastest procedure is chosen. It is assumed that
BuildCo does not waste time and commits to completing each
remaining procedure without delay. The time that BuildCo
spends on gathering information is ignored. It is assumed that
BuildCo is aware of all building requirements and their sequence
from the beginning.
Cost
All the fees associated with completing the procedures to
legally build a warehouse are included. The cost measure is
based on information received from lawyers and construction
companies as well as information in local construction
regulations.
Hiring and firing workers
Every economy has established a complex system of laws and
institutions intended to protect the interests of workers and
to guarantee a minimum standard of living for its population.
The OECD Job Study and the International Encyclopedia
for Labour Law and Industrial Relations identify 4 areas subject
to statutory regulation in all countries: employment, social
security, industrial relations and occupational health and
safety. Doing Business focuses on the regulation of employment,
specifically the hiring and firing of workers and the
rigidity of working hours. This year data on social security
payments by the employer and pension benefits, including
the mandatory retirement age, have been added.
The data on hiring and firing workers are based on a detailed
survey of employment and social security regulations.
The survey is completed by local law firms. The employment
laws of most countries are available online in the NATLEX
database, published by the International Labour Organization.
In all cases both actual laws and secondary sources are
used to ensure accuracy. Conflicting answers are further
checked against 2 additional sources, including a local legal
treatise on employment regulation.
To make the data comparable across countries, several assumptions
about the worker and the business are used.
Assumptions about the worker
The worker:
• Is a nonexecutive, full-time male employee who has
worked in the same company for 20 years.
• Earns a salary plus benefits equal to the country’s average
wage during the entire period of his employment.
• Has a wife and 2 children. The family resides in the country’s
most populous city.
• Is a lawful citizen who belongs to the same race and religion
as the majority of the country’s population.
• Is not a member of the labor union, unless membership is
mandatory.
For this year’s report data were also collected for an employee
who has worked in the same company for only 3 years. This
change influences several indicators, for example, the notice
period and severance payment in redundancy dismissals as
well as the number of vacation days. In Sri Lanka an employee
with 3 years of service receives 2.5 months of wages in severance
payment for every year of work, for a total of 7.5 months
of wages. The formula for employees with 20 or more years of
service is 38 + (y – 19), where y is the years of service. Thus for
a worker with 20 years of service, that makes for 39 months of
wages paid in severance. In Argentina a worker with 3 years of
service is entitled to 15 vacation days. A worker with 20 years
receives 25 vacation days. The choice of years of service does
not influence country rankings, as benefits to the employee
increase linearly with the years of service everywhere.
Assumptions about the business
The business:
• Is a limited liability company.
• Operates in the country’s most populous city.
• Is 100% domestically owned.
• Operates in the manufacturing sector.
• Has 201 employees.
• Abides by every law and regulation but does not grant
workers more benefits than what is legally mandated.
• Is subject to collective bargaining agreements in countries
where collective bargaining covers more than half the
manufacturing sector.
The last assumption is especially important in Western Europe,
where labor laws are sometimes silent on such issues as
minimum wages, notice period and severance pay. These are
covered in collective bargaining agreements. In Denmark, for
example, the labor law does not mandate a notice period or
severance pay for redundancy dismissals. Collective bargaining
does. For a worker with 20 years of service, a 26-week notice
period and a 3-month severance payment are required.
This is what Doing Business records, as collective agreements
are prevalent in the country. Similarly, in Germany the labor
law does not mandate a minimum wage. Industry-level collective
bargaining in the metal industry specifies 7.25 euro an
hour as the minimum wage. This is what Doing Business
records, as more than half of German manufacturing is covered
by collective agreements.
Rigidity of employment index
The rigidity of employment index is the average of three
subindices: a difficulty of hiring index, a rigidity of hours
index and a difficulty of firing index. All the subindices have
several components. And all take values between 0 and 100,
with higher values indicating more rigid regulation.
The difficulty of hiring index measures (i) whether term
contracts can be used only for temporary tasks; (ii) the max-