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Labor Market Regulations in Low-, Middle- and High-Income Countries

Author(s):
Martin Schindler, and Mariya Aleksynska
Published Date:
July 2011
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I. Introduction

Labor markets, and the policies and institutions that shape them, play a key role in the functioning of modern economies and have substantial welfare implications. The importance of labor market issues has been increasingly reflected in economic policy discussions where, according to Freeman (2007, p. 3) “[q]uestions regarding labor market institutions [have] replaced macroeconomic policy at the center of much policy debate in advanced economies.” The medium-term impact of the current global crisis on labor market outcomes is likely to underscore the need for reallocation of workers from declining industries to those with better growth prospects, while at the same time ensuring that labor market institutions achieve equity and social insurance objectives.

Labor market institutions and their impact on economic outcomes have been widely studied in many OECD countries, but much less so in others. Consistent comparative analysis of labor market institutions in developing economies has so far been hindered by a lack of comprehensive panel data. This paper aims to fill part of this gap in data coverage. Building on an intensive data-collection effort, it documents a new panel dataset on labor market regulations covering a broad sample of countries during 1980-2005 representing all income groups and regions. The labor market indicators in this database cover three key areas of labor market regulations: minimum wages, unemployment benefits, and employment protection. The dataset is based on de jure labor market institutions, as enshrined in current legislation, distinguishing it from survey-based datasets that aim to describe de facto institutions.

For many countries, especially in Eastern and Central Europe, Latin America and, more recently, Asia, the time period covered by the database has been a period of numerous substantial reforms and global changes in the labor market environment, all of which are documented in this database in the three areas considered. Applying the same methodology to countries at different stages in their economic development also allows for more meaningful comparisons across income groups and provides more scope for extending research on the functioning of labor markets to countries outside the set of advanced economies.

An important caveat to keep in mind is that while the de jure nature of this database provides for relatively objective criteria for determining when major changes in regulations occur, they leave open the issue to what extent they are applied and enforced in practice. This is of particular relevance in many low- and middle-income countries with often large informal sectors.

This paper documents the database, which is being made publicly available along with this paper. In Section II, we discuss the construction of each subcomponent, including their sources, and some methodological difficulties that were encountered in their construction; in Section III, we briefly survey existing labor market datasets; in Section IV, we provide and discuss descriptive statistics of the dataset; and in Section V we conclude. Appendix I provides a detailed description of the coding rules, and Appendix II contains an exhaustive list of data sources.

II. Construction of the Data

The indicators in the database are constructed to capture three dimensions of labor market institutions and regulations: minimum wages, unemployment benefits, and employment protection legislation. To ensure comparability across countries, over time, and across varying data sources, we follow the OECD methodology for collecting and coding the information (see Appendix I for details on our coding rules). The country coverage of the database is provided in Table 1. Table 2 provides a list of the variables in the database.

Table 1.List of Countries
High income: OECDHigh income: Non-OECDMiddle incomeLow income
East Asia & PacificEast Asia & PacificEast Asia & PacificEast Asia & Pacific
AustraliaHong KongChinaVietnam
JapanSingaporeIndonesia
KoreaTaiwanMalaysiaEurope & Central Asia
New ZealandPhilippinesKyrgyzstan
Europe & Central AsiaThailandUzbekistan
Estonia
Europe & Central AsiaEurope & Central AsiaSouth Asia
Czech RepublicMiddle East & North AfricaAlbaniaBangladesh
GreeceIsraelAzerbaijanNepal
HungaryBulgariaPakistan
Byelorussia
North AmericaGeorgiaSub-Saharan Africa
CanadaKazakhstanBurkina Faso
USALatviaCôte d’Ivoire
LithuaniaEthiopia
Western EuropePolandGhana
AustriaRomaniaKenya
BelgiumRussiaMadagascar
DenmarkTurkeyMozambique
FinlandUkraineNigeria
FranceSenegal
GermanyLatin America & CaribbeanTanzania
IrelandArgentinaUganda
ItalyBoliviaZimbabwe
NetherlandsBrazil
NorwayChile
PortugalColombia
SpainCosta Rica
SwedenDominican Republic
SwitzerlandEcuador
United KingdomEl Salvador
Guatemala
Jamaica
Mexico
Nicaragua
Paraguay
Peru
Uruguay
Venezuela
Middle East & North Africa
Algeria
Egypt
Jordan
Morocco
Tunisia
South Asia
India
Sri Lanka
Sub-Saharan Africa
Cameroon
South Africa
Table 2.Variables in the Dataset
Variable NameDescription
CountryCountry name
IFSIFS 3-digit country code
ISO2ISO 2-letter country code
ISO3ISO 3-letter country code
YearYear
mw_origMinimum wage data in original units, National currency
mnwMean wage data in original units, National currency
mw_mthlyMonthly minimum wage, National currency
mw_mnwRatio of minimum wage to mean wage
mdwMedian wage
mw_mdwRatio of minimum wage to median wage
UB_yearlawYear of first law introducing unemployment benefits legislation
UB_grr1Gross Replacement Rate, year 1
UB_grr2Gross Replacement Rate, year 2
UB_grr12Gross Replacement Rate, average over 2 years
UB_coverageUnemployment Benefits Coverage
EPL_anmaxAdvance Notice (maximum, in months)
EPL_an9mAdvance Notice Period after 9 months, in months
EPL_an9moecdOECD Score for Advance Notice after 9 months
EPL_an4yAdvance Notice Period after 4 years, in months
EPL_an4yoecdOECD Score for Advance Notice after 4 years
EPL_an20yAdvance Notice Period after 20 years, in months
EPL_an20yoecdOECD Score for Advance Notice after 20 years
EPL_spmaxSeverance Pay (maximum, in months)
EPL_sp9mSeverance Pay after 9 months, in months
EPL_sp9moecdOECD Score for Severance Pay after 9 months
EPL_sp4ySeverance Pay after 4 years, in months
EPL_sp4yoecdOECD Score for Severance Pay after 4 years
EPL_sp20ySeverance Pay after 20 years, in months
EPL_sp20yoecdOECD Score for Severance Pay after 20 years

For each of the broad data categories, we describe below the construction of each of our indicators and in each case also note methodological issues that we encountered during the process of data collection. We make explicit the cases where the calculation of the indices required us to make certain assumptions. We urge users of the data to be aware of these assumptions and constraints, and, wherever possible or appropriate, to make necessary adjustments depending on the research question.

Minimum Wages

We report nominal minimum wages in national currency, as a ratio to the mean wage, and, in some cases, relative to the median wage. All wages are reported on a monthly basis. The main data sources are IMF, OECD, Eurostat, ECLAC, Inter-American Development Bank, CIS statistics, Asian Development Bank, African Development Bank, and national statistics offices. Data on average wages were primarily collected from ILO KILM and ILO Laborsta, although for a range of countries also from national sources. Appendix II contains all sources of information on a country-by-country basis.

When minimum wages are set on other than a monthly basis, we convert them to monthly wages based on a number of assumptions (see Appendix I). These assumptions, such as a 40-hour working week (set by the ILO C47 Forty-Hour Week Convention, 1935) may not be fully appropriate in many developing countries, either because the C47 Convention has not been ratified, or because it is not applied. Thus, users are invited to adjust the monthly measures to the actual hours worked wherever additional information is available.

Several shortcomings in the measurement of minimum wages should be emphasized. First, they reflect only the formal sector, an important caveat especially for studies focusing on developing countries, where informal sectors can be large. Second, in a number of countries, there can be several minimum wages, differentiated across regions (such as in Indonesia), sectors (Sri Lanka), types of skill (Nepal) or type of enterprise (Vietnam). In these cases, we report the simple average of existing minimum wages.2 In other countries, especially those with periods of high inflation (such as Belarus), minimum wages were reset several times during a given year, and we report only the ones in effect on the first of July 1 of the corresponding year. And third, even though many countries, including several in Europe, do not have statutory minimum wages, collective wage agreements often form de facto wage floors, so reporting minimum wage as zero would be misleading. In the database, we have marked explicitly where collective wage agreements are in place; however, further data collection in such countries would be fruitful.3

Minimum wages are also reported as ratios to average and, in a subset of countries, to median wages. Relating minimum wages to some measure of the aggregate level of wages is important for cross-country comparisons, but neither measure is without limitations. Median wages are less sensitive to outliers than mean wages and thus may be a better measure when income distributions are highly skewed, such as those in many developing countries. They are, however, only infrequently reported, thus limiting the sample severely. Mean wage data, by contrast, are relatively noisy and volatile, and inconsistently measured across countries (e.g., detrended in some countries but not in others). Also, mean wages typically correspond to average wages in manufacturing for males and females in full-time employment, even though in many countries, especially low-income countries, the manufacturing sector represents only a small part of the economy and women may represent only a small part of the workforce in these sectors. Nevertheless, to maximize data coverage, we calculate the ratio of minimum to mean wage as our baseline indicator.4

Unemployment Insurance

We construct two unemployment insurance (UI) indicators to capture different aspects of unemployment insurance systems:

  • The level of UI benefits captures the generosity of the unemployment benefit system and is measured by the gross replacement rate (GRR), that is, the ratio of UI benefits a worker receives relative to the worker’s last gross earning.5 The database contains GRR measures for the first year of unemployment, the second year of unemployment, and the average of the two.
  • The number of UI benefit recipients is calculated as the number of individuals who, at a given point in time, receive UI benefits. Relative to the number of unemployed, it can proxy the extent and reach, or exclusivity, of the UI system in a given country and thus provide complementary information to the generosity of the UI system.

To construct the GRR, we collect information on the earnings base, waiting period, rules of UI payment, maximum duration, and minimum and maximum payments (UI benefit ceilings). We also determine the year of introduction of the first legislation and the years of all consecutive reforms, and record the rules and procedures set out by each law, following six steps:

  • Based on the Social Security Programs Throughout the World (2002–08) country reports, determine whether any UI regulation exists, and obtain the year of first legislation.
  • Verify reform years and track reforms changes using the ILO NATLEX.
  • In case of the European countries, verify the latest rules and the reform years with the MISSOC and LABREF databases.
  • In case of the OECD countries, verify the procedures with the OECD Benefits and Wages database and country-specific chapters.
  • For Latin American countries, verify with country information from Heckman and Pages (2004).
  • For all other countries and for earlier years, explore further the US Department of State Reports on Human Rights Practices; national legislation databases; direct contacts with national experts, researchers in the field, policy-makers, representatives of trade unions and employers organizations; press, business news and analytical reports in various languages (including English, French, Spanish, Portuguese, Russian, Ukrainian, and other Slavic languages).

For information on the number of UI benefit recipients, we additionally rely on the following sources: national statistics offices and national statistical yearbooks, ministries of labor, social protection, and employment, social security administrations, labor funds, other bodies who administer the programs, ministries of finance and economy, national central banks, local research institutes, and national libraries wherever available.

Unemployment assistance is not generally considered part of UI, and we thus do not include such information in the calculations of GRR and coverage. However, some countries, namely, Australia, Hong Kong, and New Zealand, do not have an unemployment benefit system, but instead highly developed unemployment assistance schemes; in these cases, we calculate GRRs on the basis of unemployment assistance. In other countries, such as Chile (2002–05), and Venezuela (2002–05), reforms took place towards broader social insurance systems (see, e.g., Acevedo, Eskenazi, and Pagés, 2006). For example, Chilean unemployment insurance is based on two components: individual capitalization accounts, to which workers are contributing, and a common fund, to which the employer and the state are contributing. We compute the amount of benefits for reference individuals with the maximal legislatively set length of contributions to the individual savings accounts.

In most countries, we calculate GRRs on a de jure basis. However, this is possible only in countries where rules for UI payments are expressed in percent of previous earnings. In a number of countries, however, UI payments are set as a percentage of a minimum wage or a subsistence minimum, or as a flat rate payment. In these cases, we calculate GRRs on a de facto basis, as the ratio of these payments to previous earnings, proxied by the average wage in manufacturing. See Table 3 for the list of such cases. This procedure may affect comparability of the calculated GRRs across countries.

Table 3.Countries in the Database with De Facto Gross Replacement Rates
Albania (1993-2005)Hong Kong (2001-2005)
Algeria (1994-2005)Ireland (1980-2005)
Argentina (1985-1991)Kyrgyzstan (1991-2005)
Australia (1980-2005)Lithuania (1991-2005)
Chile (1985-2005)New Zealand (1980-2005)
China (1999-2005)Poland (1996-2007)
Estonia (1992-2002)Portugal (1980-1984)
Finland (1985-2005)Tunisia (1982-2005)
Georgia (1998-2005)UK (1990-2005)

A methodologically difficult area is that of UI coverage, conceptually, the fraction of unemployed individuals who collect UI benefits.6 While its calculation is straightforward, cross-country comparability is problematic. In most countries with UI systems in place, the number of UI benefit recipients (the numerator of the coverage index) is a highly accurate statistic: it is collected by the offices that effectuate the payments, based on officially claimed and received benefits, and is further aggregated by bodies administering the UI system, such as UI boards, national insurance institutes, or national employment offices. It is typically reported on a cumulative basis, such as the number of recipients for a given period of time, usually a month, a quarter, or a year.

By contrast, the number of unemployed individuals (the denominator of the coverage index), is usually measured with less precision, especially in non-OECD countries, and it is often particularly difficult to account for unofficial and hidden unemployment. Labor force surveys may also underestimate actual unemployment. For example, in many countries, labor force surveys focus on metropolitan regions where unemployment rates are often lower. Because the statistics of recipients cover the whole country, the UI coverage ratio can be implausibly high, exceeding one in some cases.

The number of unemployed is a statistic that is also conceptually different from the number of recipients: the former is usually given for a specific point in time, while the latter is reported on a cumulative basis, that is, as the number of all individuals who during a given year received UI benefits for any length of time.7 Lastly, countries also set different rules for UI payment, with, for example, some making UI payments even to partly-employed workers. These caveats imply that cross-country comparisons may not always be informative. However, to the extent that national definitions remain unchanged over time, the indicator can provide useful information on within-country dynamics. That said, we report both the number of recipients and the number of unemployed in the database to allow researchers to choose whichever variable best suits their purpose.

Employment Protection

The database contains two main indicators of employment protection legislation (EPL), reflecting advance notice requirements and legally mandated severance payments, for workers with 9 months, 4 years, and 20 years of experience, respectively. We report advance notice and severance pay requirements both in monthly salary equivalents and coded according to the OECD methodology. For their construction, we followed the same (six) steps as those for UI, based on the various EPL publications. In particular, the ILO Termination of Employment Legislation Digest, a database that describes EPL currently in place in a selection of countries, served as one of the main sources of information for EPL provisions. The main data sources for most of Africa, Asia, and the former Soviet Union were national labor codes and national legislation, some of which were obtained from the ILO Library Archives and the ILO NORMES Database, which are open to the public at the ILO head office in Geneva. For transition economies, we also relied on the Tonin (2007) database of EPL.

Unlike UI systems, EPL, in the form of either advance notice or severance payment requirements, has been in place in the vast majority of countries during 1980–2005. All of the EPL indices in the database are de jure, based on the provisions of legislation in place, such as labor codes, employment protection acts, and other types of laws8.

III. Comparison with Other Datasets

OECD Benefits and Wages, Minimum Wages, and Employment Protection Databases

These databases contain detailed information on all indicators that we are reporting for the period from 1960 to 2005, but restricted to OECD countries. The OECD databases are the main point of departure for our database. Specifically, for the OECD countries, we use the data directly from these datasets (except for the data on UI coverage, which we construct for both OECD and non-OECD countries). For all countries outside the OECD, we also apply the OECD data coding methodology in addition to providing the actual raw data. For example, some of the indicators, such as advance notice and severance payment, are part of the OECD EPL indices. Thus, an important contribution of our new dataset is its extention of three subject areas to non-OECD countries, especially lower-income countries, and the addition of information on UI coverage for all countries.

Social Security Programs throughout the World (SSPTW)

The SSPTW reports are descriptive in character, in contrast to the quantitative nature of our dataset. They contain information on UI systems (among other indicators) for most countries in our sample as well as additional ones. These reports describe mainly the current legislation, although they also provide the year of the first law for unemployment benefit provisions and the year of entry into force of current legislation. Our dataset uses the SSPTW as one of the main information sources for coding current UI regulations, and for determining whether regulations exist at all.

World Bank Doing Business (DB) Indicators

The DB database covers 181 countries, but provides information only starting in 2004. Among many other subjects, the DB database contains information on firing cost and on the difficulty of firing workers. The main difference from our new database is that the DB database is based on experts’ assessments of the severity of laws and regulations, and the coding of indicators is based in large part on survey questionnaires completed by local law firms. Partly reflecting their subjective nature, the DB indicators, especially those pertaining to the “Employing Workers” component, have been criticized (see Berg and Cazes, 2008, for a detailed discussion). By contrast, our database is a descriptive coding of the actual laws and regulations that are in place and does not take a stance on the desirability of a given level of regulation.9

Botero, Djankov, La Porta, Lopez-de-Silanes, Shleifer (2004)

This dataset covers 85 countries and a variety of indicators in the areas of employment laws; collective relations laws; and social security laws, partly overlapping with our database. However, it provides only a one-year snapshot (1997) of these regulations. By contrast, our database allows for the tracking of changes in labor market regulations over time.

Rama and Artecona (2002)

This database provides information for 121 countries, partly overlapping with our sample, during 1945-1999. It contains 44 labor market indicators, including the nominal minimum wage (in current US dollars); the initial UI benefit (in percent of earnings before job loss); the maximum duration of continuous unemployment benefits; and the mandatory severance pay after three years of employment (in months of salary). The data are reported in the form of five-year averages. While this aggregation was done deliberately, as many institutions are rigid and do not often change over time, it hinders the dating of reforms and cannot pick up rapid changes, such as those during 1990–2005 in many transition economies. Thus, Rama and Artecona’s (2002) and our database are complementary in that they cover similar regulations but using different approaches.

Other datasets

Several other datasets exist that are related to ours along various dimensions, including the LIS Comparative Welfare States Dataset (see Huber et al, 2004); the Fondazione Rodolfo Debenedetti Social Reforms Database; the Fraser Institute Economic Freedom of the World Annual Reports; and the Harvard Labor and Work Life Program’s Global Labor Survey (Chor and Freeman, 2004; Freeman, 2007). Interested readers are encouraged to review these databases for further detail.

IV. Descriptive Statistics

Tables 4 and 5 provide a number of descriptive statistics for the variables in our database. What stands out from Table 4 is that while countries on average have substantial labor market regulations in place, the median regulation for many of them is zero, such as for UI systems and severance pay at short tenures.10 The zero median in these cases is driven by low- and middle-income countries during the early part of the sample period. High-income countries have had fairly high levels of UI benefits and have had EPL regulations in place throughout the sample period, while less developed countries have started to regulate their labor markets only more recently. (Table 5 provides means by income and regional subgroups.)

Table 4.Descriptive Statistics
VariablesNumber of ObservationsMeanMedianStandard DeviationMinMax
mw_mnw14900.340.350.220.001.32
UB_grr123100.170.000.230.000.87
UB_grr223100.060.000.140.000.66
UB_grr1223100.120.000.170.000.72
UB_coverage21090.210.000.370.003.23
EPL_an9m23400.770.830.660.003.00
EPL_an9moecd23402.302.001.700.006.00
EPL_an4y23401.091.000.860.004.00
EPL_an4yoecd23402.112.001.550.006.00
EPL_an20y23401.791.001.970.0010.00
EPL_an20yoecd23401.071.001.000.005.00
EPL_spmax23407.393.008.660.0046.83
EPL_sp9m23400.430.000.700.003.50
EPL_sp9moecd23400.940.001.400.006.00
EPL_sp4y23401.791.001.970.0016.00
EPL_sp4yoecd23402.612.002.270.0012.00
EPL_sp20y23406.883.008.530.0046.83
EPL_sp20yoecd23402.251.002.190.006.00
Table 5.Averages 1980-2005 by Region and Income Level
VariableEast Asia & PacificEurope & Central AsiaLatin America & CaribbeanMiddle East & North AfricaNorth AmericaSouth AsiaSub-SaharanWestern EuropeAll
mw_mnw0.270.300.410.290.360.580.180.400.34
UB_grr10.120.180.050.210.390.050.010.500.17
UB_grr20.050.010.000.030.000.000.000.290.06
UB_grr120.080.090.030.120.190.030.000.390.12
UB_coverage0.180.190.050.100.480.000.010.720.21
EPL_an9m0.700.840.680.390.130.820.841.020.77
EPL_an9moecd2.142.502.001.310.502.482.462.932.30
EPL_an4y0.851.080.900.480.431.121.311.661.09
EPL_an4yoecd1.652.041.791.041.002.242.493.112.11
EPL_an20y0.941.641.250.501.001.121.544.381.79
EPL_an20yoec0.760.880.820.440.500.801.112.221.07
EPL_spmax9.223.0716.318.201.1311.744.613.407.39
EPL_sp9m0.300.680.710.100.000.210.390.230.43
EPL_sp9moecd0.721.431.520.310.000.600.830.470.94
EPL_sp4y2.361.104.151.740.232.040.890.621.79
EPL_sp4yoecd3.521.995.172.710.503.111.481.002.61
EPL_sp20y8.352.5816.158.081.1310.213.843.216.88
EPL_sp20yoecd2.911.234.562.680.503.311.301.122.25
High incomeHigh income: OECDHigh income: Non-OECDMiddle incomeLow incomeAll
mw_mnw0.340.380.200.350.240.34
UB_grr10.370.410.160.110.010.17
UB_grr20.170.200.000.010.000.06
UB_grr120.270.300.080.060.010.12
UB_coverage0.530.620.120.080.020.21
EPL_an9m0.830.890.560.700.840.77
EPL_an9moecd2.472.611.802.132.432.30
EPL_an4y1.291.390.830.931.171.09
EPL_an4yoecd2.452.611.661.832.222.11
EPL_an20y3.113.551.041.091.331.79
EPL_an20yoec1.691.860.880.710.921.07
EPL_spmax5.333.9012.189.096.637.39
EPL_sp9m0.250.220.380.560.410.43
EPL_sp9moecd0.550.460.951.210.930.94
EPL_sp4y1.040.812.112.491.331.79
EPL_sp4yoecd1.771.393.613.362.152.61
EPL_sp20y4.813.5810.758.795.656.88
EPL_sp20yoecd1.681.323.412.771.952.25

As Figure 1 indicates, however, the dynamics are not linear. While high-income countries exhibited fairly limited variation over time, other income groups expanded labor regulations more dramatically, albeit from typically low initial levels. High-income countries still exhibit substantially higher levels of UI benefits than other countries, and there appears to be little convergence movement, with the exception of a marked increase of replacement rates in middle-income countries around 1990 (driven largely by Emerging Europe and Central Asia, see Figure 2). EPL provides a more mixed picture: on the one hand, by the end of the sample, advance notice requirements had broadly converged at the (high) level of high-income countries; on the other hand, large differences in severance pay requirements across income groups persisted throughout the sample period. Interestingly, severance pay is the only category where high-income countries score as the least regulated group.

Figure 1.Labor Market Regulations by Income Level

Figure 2.Labor Market Regulations by Region

The dynamic patterns of minimum wage regulations are also complex. Low-income countries converged with (and even exceeded) average minimum wage levels in higher income countries in the early 1990s, but fell off again subsequently, while those in other countries continued their moderate upward trend. As a result, in 2005 minimum wages in low-income countries were about a quarter the level of those in other countries, similar to their relative level at the beginning of the sample period.

Figure 2 provides a regional perspective. It confirms the notion that Western European countries have on average more regulations in place, especially UI benefits and advance notice requirements. Along other dimensions, however, it may be surprising to note that South Asia has substantially higher minimum wages than Western Europe; the latter has been broadly on par with North America, but average minimum wages went up in Western Europe after 2000, while they slightly decreased in North America. By contrast, severance pay requirements are highest in Latin America and lowest in North America and Western Europe, the former finding due to the specific nature of these provisions in many Latin American countries, which combine elements of severance pay systems and unemployment benefit systems at the same time.

One lesson that can be drawn from these descriptive statistics is that substantial differences in labor market institutions exist between advanced and developing economies, as well as between regions. Substantial variation in labor institutions can also be observed over time in developing economies, to a much larger extent than in advanced countries during the same time period. These large variations in labor market regulations across countries and time suggest that much can be learned from including developing economies in studies of the effects of labor market regulations.

Interesting patterns also emerge when considering the correlations between different types of labor market institutions (see Table 6). In general, the various regulations are fairly uncorrelated, by itself suggesting that policy makers do not necessarily view the various aspects of labor market reform as part of an overall package.11 This is surprising as one might expect that policy makers either fine-tune regulations by offsetting higher regulations in one area with lower regulations in another (negative correlation) or, alternatively, that countries fall into different camps, some with low regulations on all or most dimensions, and others choosing the opposite strategy (positive correlation). Possibly, the absence of any correlation in the full sample reflects a mix of different countries pursuing different reform strategies. Further research could shed more light on this.

Table 6.Correlations among Key Labor Market Regulations: Levels and Changes
(a) Levels
mw_mnwUB_grr1EPL_an4yEPL_sp4y
mw_mnw1
UB_grr10.101
EPL_an4y0.060.281
EPL_sp4y0.13-0.240.011
(b) Changes
dmw_mnwdUB_grr1dEPL_an4ydEPL_sp4y
dmw_mnw1
dUB_grr10.061
dEPL_an4y-0.030.001
dEPL_sp4y-0.02-0.020.341

V. Conclusions

This paper has documented a new database on labor market regulations, including unemployment insurance, minimum wages and employment protection legislation. The impact of such regulations on economic outcomes is at the heart of the policy debate in advanced and, more recently, developing economies. In part reflecting data constraints, however, most existing research on the effects of labor market institutions has focused on advanced countries, the findings of which are not easily generalized to low- and middle-income countries. It is in this area that this database adds most value by covering a broader range of countries, including especially emerging and developing economies.

Simple descriptive statistics indicate that labor market regulations have varied substantially over time in developing countries, and remain high in many of them. This variation can provide useful information on the effects of reforms. While caveats apply—namely, large informal sectors in many low- and middle-income economies that are, by definition, outside the regulatory framework—we hope that the new database will be a useful resource to researchers interested in studying the functioning of labor markets also outside advanced economies.

Appendix I. Coding Rules

Statutory Minimum Wages

Four indicators for statutory minimum wages are reported:

1) Minimum wages in countries with statutory regulations, in national currency and original units (i.e., set weekly, daily, or monthly). Reported data correspond to the values in effect on July 1st of each year, unless otherwise specified. In countries were several minimum wages were in place, varying by sector or by location, a simple average minimum wage was constructed.

2) Minimum wages in national currency on a monthly basis. Whenever original data are available on another scale, the following assumptions are made for recalculation:

  • - working day: 8 hours,
  • - working week: 40 hours
  • - working month: 22 days
  • - working year: 52 weeks, 12 months

3) Ratio of minimum monthly wage in national currency to the average monthly wage in national currency.

4) Ratio of minimum monthly wage in national currency to the median monthly wage in national currency, for a selection of countries, for which data on median wages are available.

5) Data Coding:

0 – no minimum wage legislation in place, wages are determined by the market.

. – missing value: legislation is in place but the data are not available

n/a – no statutory minimum wage arrangement; but other wage setting arrangements may be in place, such as wage grids, as for example, in the former Soviet Union

c/a – wages determined by collective agreements

Unemployment Benefits

Two groups of indicators for unemployment benefits are reported:

1) Gross Replacement Rates, defined as levels of statutory entitlements over average wages show what percentage of earnings is replaced by benefits; reported are values after the first year of unemployment, after the second year of unemployment, and a simple average for two years of unemployment.

In calculations, the OECD methodology is followed as closely as possible (see OECD, 1994, 2004, 2007; and Martin, 1996).

The following assumptions were made:

  • Calculations are made for a worker of 40 years of age, who has been continuously full-time employed and has the maximum amount of contributions for a given profile. GRR are calculated for 100% earners; one family situation (single worker without children). Ceilings are taken into account; 2-year unemployment period is assumed.
  • Even though the information on the earnings base is collected (gross or net payments), gross base is assumed, and no account of the tax base is made. Current earnings are used in calculations, and de-facto replacement rates are reported, facilitating comparison for countries with flat-rate payments or flat-rate ceilings. When no information on average wage is available, de-jure rates are reported.
  • No unemployment assistance is included

2) Unemployment Benefit Coverage: the ratio of the number of UI Benefit recipients to the number of unemployed.

Data Coding:

0 – no legislation or specific provision is in place.

. – missing value: legislation is in place but the data are not available

Employment Protection: Notice and severance pay for no-fault individual dismissals

The following indicators are collected and reported:

1) Maximum advance notice

2) Advance notice period after 9 months of service, in months

3) Advance notice period after 4 years of service, in months

4) Advance notice period after 20 years of service, in months

5) Maximum Severance payment

6) Severance payment after 9 months of service, in months: a lump-sum payment to the dismissed employee at the time of cessation of employment

7) Severance payment after 4 years of service, in months

8) Severance payment after 20 years of service, in months

The data are collected and reported for the following cases of workers:

• Regular contracts of unspecified duration after any trial period for the job

• Dismissed on personal grounds or individual redundancy at the initiative of the employer

• Fair dismissals only

• Rules for workers paid on monthly basis

• When dismissal is specified differently for personal and for economic reasons (individual redundancy), the average of the two is taken

• When dismissal is specified differently for skilled and unskilled workers, or blue collar and white collar workers, the average of the two is taken

• In case when rules depend on worker’s age, assume that the start of work is at 20 years of age

Maximum AN and SP are the maximally possible provisions: at 20 years of service, economic or personal reasons, whichever is highest, blue collar or white collar, whichever is highest.

In addition, these values were also coded according to the OECD methodology (Table A1), and the scores based on the OECD coding scheme for AN and SP are also reported.

Table A1.The OECD Coding Methodology
Original Unit and Short DescriptionAssignment of Numerical Strictness Scores
Assigned Scores
0123456
Advance notice period at9 months of tenureMonths0≤0.4≤0.8≤1.2<1.6<2≥2
4 years of tenureMonths0≤0.75≤1.25<2<2.5<3.5≥3.5
20 years of tenureMonths<1≤2.75<5<7<9<11≥11
Severance pay at9 months of tenureMonths pay0≤0.5≤1≤1.75≤2.5<3≥3
4 years of tenureMonths pay0≤0.5≤1≤2≤3<4≥4
20 years of tenureMonths pay0≤3≤6≤10≤12≤18>18
Source: OECD Employment Outlook (2004), Chapter 2, Annex 2.1, Table 2.A1.1, items 3 and 4.
Source: OECD Employment Outlook (2004), Chapter 2, Annex 2.1, Table 2.A1.1, items 3 and 4.
Appendix II. Information Sources by Country

Albania

Minimum Wage and Average Wage

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Employment Protection

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    Labor Code of Albania (1966). ILO Legislative Series 1966-Vol. I.

    Labor Code of Albania (1995). ILO NATLEX Country Profiles Database. Geneva. Available at: http://www.ilo.org/dyn/natlex/natlex_browse.home.

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Algeria

Minimum Wage and Average Wage

Unemployment Benefits and Coverage

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Employment Protection

    Law on a General Status of a Worker of the Democratic People’s Republic of Algeria (1978).

    ILONORMES Database. ILO: Geneva.

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Argentina

Minimum Wage and Average Wage

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Unemployment Benefits and Coverage

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Australia

Minimum Wage and Average Wage

Unemployment Benefits and Coverage

Employment Protection

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Austria

Unemployment Benefits and Coverage

Employment Protection

Azerbaijan

Minimum Wage and Average Wage

Unemployment Benefits and Coverage

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Bangladesh

Minimum Wage and Average Wage

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Employment Protection

Belgium

Minimum Wage and Average Wage

Unemployment Benefits and Coverage

Employment Protection

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Bolivia

Minimum Wage and Average Wage

Employment Protection

Brazil

Minimum Wage and Average Wage

Unemployment Benefits and Coverage

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Bulgaria

Minimum Wage and Average Wage

    FedEE: Federation of European Employers.

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Employment Protection

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BurkinaFaso

Minimum Wage and Average Wage

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Employment Protection

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Belarus

Minimum Wage and Average Wage

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Note: Very low ratios of minimum to mean wage in the early nineties due to hyperinflation and slow minimum wage adjustment: the values of minimum wage are taken as of July 1, while average wages are reported as of October (October labor inquiry). See the Appendix in the data file for more detailed minimum wage data, reported quarterly.

Unemployment Benefits and Coverage

    National Legal Portal of Belarus. Available at: http://www.pravo.by

    National Statistics Bylorussia

    Legal System USIAS Database. Available at: http://www.nlb.by

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    Labor Code of Belarus (1999).

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Cameroon

Minimum Wage and Average Wage

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    Groupement Interpatronal du Cameroun Database. Available at: http://www.legicam.org/gicam.html. Accessed: August102007.

    IZF Association. Available at: http://www.izf.net. Accessed: November2007.

Employment Protection

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    Law No. 74-14: Instituting the Labor Code (1974). Official Gazette of the United Republic of Cameroon 5 Dec 1974. Provided by the ILO Library Archives.

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Canada

Minimum Wage and Average Wage

Unemployment Benefits and Coverage

Employment Protection

    OECD (2004). Employment Outlook. Paris: OECD.

    OECD (1994). Employment Outlook. Paris: OECD.

Chile

Minimum Wage and Average Wage

Unemployment Benefits and Coverage

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China

Minimum Wage and Average Wage

Note: Year 2001 is a breaking point in the calculation of minimum wages: prior to it 2001, minimum wages are calculated only for Guandong/Canton and Shenzhen provinces. In 2001, 30 regions of China’s mainland have instituted independent minimum wage systems, with a rule that each locality should set a minimum wage within the range of 40% to 60% of the average wage in that locality. In 2004, a reform of minimum wages established monthly minimum wages for full-time workers, and hourly minimum wages for part-time workers in provinces. The reported values correspond to average wages in two provinces prior to 2001, and in 30 provinces thereafter.

Unemployment Benefits and Coverage

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Colombia

Minimum Wage and Average Wage

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Unemployment Benefits and Coverage

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Costa Rica

Minimum Wage and Average Wage

Employment Protection

Cote D’Ivoire

Minimum Wage and Average Wage

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Employment Protection

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Czech Republic

Minimum Wage and Average Wage

Unemployment Benefits and Coverage

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Denmark

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Employment Protection

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Dominican Republic

Minimum Wage and Average Wage

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Ecuador

Minimum Wage and Average Wage

Note: High values in the beginning of the period are due to the fact that mean wages are reported per hour; and the standard conversion of 8 working hours and 22 days per month is used. A different conversion, using, for example, 30 days, may be more meaningful, but is not applied here in order to preserve crosscountry consistency.

Egypt

Minimum Wage and Average Wage

Unemployment Benefits and Coverage

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El Salvador

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Estonia

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Ethiopia

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Employment Protection

Finland

Unemployment Benefits and Coverage

Employment Protection

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France

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Unemployment Benefits and Coverage

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Georgia

Minimum Wage and Average Wage

Unemployment Benefits and Coverage

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Germany

Unemployment Benefits and Coverage

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Ghana

Minimum Wage and Average Wage

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Greece

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Guatemala

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Employment Protection

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Hong Kong

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Hungary

Minimum Wage and Average Wage

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India

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Unemployment Benefits and Coverage

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Indonesia

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Ireland

Minimum Wage and Average Wage

Unemployment Benefits and Coverage

Employment Protection

    OECD (1999). Employment Outlook. Paris: OECD.

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Israel

Minimum Wage and Average Wage

Unemployment Benefits and Coverage

Employment Protection

Italy

Unemployment Benefits and Coverage

Employment Protection

    OECD (2004). Employment Outlook. Paris: OECD.

Jamaica

Minimum Wage and Average Wage

Employment Protection

Japan

Minimum Wage and Average Wage

Unemployment Benefits and Coverage

Employment Protection

Jordan

Minimum Wage and Average Wage

Employment Protection

Kazakhstan

Minimum Wage and Average Wage

    Statistics Bureau of Kazakhstan

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    ILONATLEX Country Profiles Database. Geneva. Available at: http://www.ilo.org/dyn/natlex/natlex_browse.home

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Kenya

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Korea

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Unemployment Benefits and Coverage

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Kyrgyz Republic

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Latvia

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    Latvian Bureau of Statistics

Unemployment Benefits and Coverage

Employment Protection

    EIRO

    Law of the Supreme Council of the Republic of Latvia of March 171992

    Labor Code of Latvia1994. Provided by ILO Natlex

    Labor Law of the Republic of Latvia. Provided by Translation and Terminology Center

Lithuania

Minimum Wage and Average Wage

    Statistics Department of Lithuania

Unemployment Benefits and Coverage

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Employment Protection

    Law on the Employment Contract. 28 November 1991 No. I-2048. Vilnius

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Madagascar

Minimum Wage and Average Wage

    Ministère de la Fonction Publique de l’Emploi et des Conditions Sociales

    Secretariat Permanent de la Prevision Macroéconomique

Employment Protection

    Labor Code of Madagascar1975Provided by the Ilo Library Archives

    Labor Code of Madagascar1995Provided by the ILO Natlex

    Labor Code of Madagascar2004Provided by the ILO Natlex

Malaysia

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Mexico

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Morocco

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Mozambique

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Nepal

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New Zealand

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Unemployment Benefits and Coverage

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The Netherlands

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Unemployment Benefits and Coverage

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Nicaragua

Minimum Wage and Average Wage

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Nigeria

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Norway

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Pakistan

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Paraguay

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Poland

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Portugal

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Romania

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Senegal

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Singapore

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Spain

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Sri Lanka

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Switzerland

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Taiwan

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Tanzania

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Unemployment Benefits and Coverage

    Office of Retirement and Disability Policy US Social Security Administration (2002-2007). Social Security Programs Throughout the World. Annual Country Reports. Available at: http://www.ssa.gov/policy/docs/progdesc/ssptw/

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Employment Protection

    Notification of the Ministry of Interior Regarding Labor Protection 16 March BE 2515 (1972). ILO Library Archives.

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    Notification of Ministry of Labor of Social Welfare Regarding Labor Protection BE 2537 (1994). ILO Library Archives

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Tunisia

Minimum Wage and Average Wage

    DelmasureD. (1990). “L’Economie Tunisienne: De L’Etat-Providence a l’Ambition LiberaleDocument de Travail No. 90-04. CEPII: Paris.

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    L’Observatoire Juridique Tunisie. Avaliable at: http://jurisitetunisie.com/tunisie/index/SMIG.htm

    The World Bank (1990). Country Economic Memorandum. The World Bank: Washington, DC.

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Unemployment Benefits and Coverage

    Office of Retirement and Disability Policy US Social Security Administration (2002-2007). Social Security Programs Throughout the World. Annual Country Reports. Available at: http://www.ssa.gov/policy/docs/progdesc/ssptw/

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    WuJ. (2000). “Unemployment Benefits Systems: the International Labor Organization’s RecommendationsResearch and Library Services Division Legislative Council Secretariat Citibank Hong Kong.

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Employment Protection

    ILOTermination of Employment Legislation Digest. Available at: http://www.ilo.org/public/english/dialogue/ifpdial/info/termination/

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    The World Bank (2004). Unlocking the Employment Potential in the Middle East and North Africa : Toward a New Social Contract. The World Bank: Washington, DC.

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Turkey

Minimum Wage and Average Wage

Note: Data in thousands.

Unemployment Benefits and Coverage

    ILOLaborsta Database. Geneva. Available at: http://laborsta.ilo.org/

    SahinH.KizilirmakB. (2006). “Determinants of Duration of Unemployment Insurance Benefits in TurkeyAnkara University: Ankara.

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    Office of Retirement and Disability Policy US Social Security Administration (2002-2007). Social Security Programs Throughout the World. Annual Country Reports. Available at: http://www.ssa.gov/policy/docs/progdesc/ssptw/

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    Statistics Turkey: Turkyie Is Kurumu.

Employment Protection

    ILO Termination of Employment Digest

    Labor Code of Turkey1983ILO Legislation Series. Provided by the ILO Library Archives

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    OECD (1999). Employment Outlook. Paris: OECD.

    OECD (2004). Employment Outlook. Paris: OECD.

Uganda

Minimum Wage and Average Wage

    WanderaM. and MwamadzigoM (1999). “Uganda: Minimum Wages or Minimizing Wages?ILO Working Paper. ILO: Harare.

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    Office of Retirement and Disability Policy US Social Security Administration (2002-2007). Social Security Programs Throughout the World. Annual Country Reports. Available at: http://www.ssa.gov/policy/docs/progdesc/ssptw/

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Employment Protection

    Uganda Employment Act (1964). Provided by ILO Legislation Series

Ukraine

Minimum Wage and Average Wage

    KupetsOlga (2005). “Determinants of Unemployment Duration in UkraineEERC Working Paper. EERC: Kyiv.

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    Laws of Ukraine establishing minimum wage levels various years

    Statistical Yearbooks Various Years

Unemployment Benefits and Coverage

    KupetsOlga (2005). “Determinants of Unemployment Duration in UkraineEERC Working Paper. EERC: Kyiv.

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    National Statistics Bureau of Ukraine: DerzhComStat

    Laws of Ukraine establishing subsistence minimums various years

Employment Protection

    Labor Code of Ukraine (1973) with changes and amendments available (in Ukrainian) at the Portal of the Parliament of Ukraine: http://zakon.rada.gov.ua

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    Tonin Mirco ((2005). “Updated Employment Protection Legislation Indicators for Central and Eastern European CountriesInstitute for International Economic Studies (IIES). Stockholm Universitymimeo.

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United Kingdom

Minimum Wage and Average Wage

Unemployment Benefits and Coverage

Employment Protection

    Act to Consolidate Certain Enactments Relating to Contracts of Employment (1972). Ch. 53. ILO Legislative Series.

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    OECD (2004). Employment Outlook. Paris: OECD.

United States of America

Minimum Wage and Average Wage

Unemployment Benefits and Coverage

    ILOLaborsta Database. Geneva. Available at: http://laborsta.ilo.org/

    OECD (1999). The Public Employment Service in the United States. OECD: Paris.

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    Office of Retirement and Disability Policy US Social Security Administration (2002-2007). Social Security Programs Throughout the World. Annual Country Reports. Available at: http://www.ssa.gov/policy/docs/progdesc/ssptw/

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    U.S. Department of Labor Employment & Training Administration. Available at: http://workforcesecurity.doleta.gov/unemploy/claims.asp

Employment Protection

Uruguay

Minimum Wage and Average Wage

    SullaVictorStefanoScarpettaGaëllePierre. Database for Labor Market Regulations and Institutions Across Countries.

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    ILOLaborsta Database. Geneva. Available at: http://laborsta.ilo.org/

    National Institute of Statistics. Available at: http://www.ine.gub.uy/

Unemployment Benefits and Coverage

    AmaranteV.BucheliM. (2006). “Documento de Trabajo. El Seguro de Desempleo en UruguayBaco Mundial et Ministerio de Trabajo et Seguridad Social.

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    Instituto de Seguridad Social

    MarshallA. (1997). “State Labour Market Intervention in Argentina, Chile and Uruguay: Common Model, Different VersionsEmployment and Training PapersILO: Geneva.

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Employment Protection

    JaramilloM. and SaavedraJ (2005). “Severance Payment Programs in Latin AmericaEmpirica Vol. 32 No. 3-4. pp. 275307.

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    ILONATLEX Country Profiles Database. Geneva. Available at: http://www.ilo.org/dyn/natlex/natlex_browse.home

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    International Bank for Reconstruction and Development / The World Bank. Doing Business Indicators. Available at: http://www.doingbusiness.org/

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Uzbekistan

Minimum Wage and Average Wage

    National Laws and Legal Documents

    Uzbek Economic Trends Quarterly Issue 2000. Ministry of Macroeconomics and Statistics.

Unemployment Benefits and Coverage

    Interstate Statistical Committee of the Commonwealth of Independent States. CIS Statistics Database. http//www.cisstat.com

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    ILOSocial Security Department Database. ILO: Geneva.

    Law of the Republic of UzbekistanOn Employment ProtectionNo 854-XII May 7 (1993).

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    Office of Retirement and Disability Policy US Social Security Administration (2002-2007). Social Security Programs Throughout the World. Annual Country Reports. Available at: http://www.ssa.gov/policy/docs/progdesc/ssptw/

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Employment Protection