IMD World Competitiveness Index VS Unemployment Lam Ka Man Sung Yuk Ling Chow Cheuk Yin Wan Tai Ho Au Chun Lung

Academic definition of competitiveness A field of Economic knowledge Analyzes the facts and policies that shape the ability of a nation Create and maintain an environment that sustains more value creation for its enterprises and more prosperity for its people

More precisely Competitiveness analyzes how nations and enterprises manage the totality of their competencies to achieve prosperity and profit

About WCI The ranking represent a success, economic performance, wealth of a nation The ability of nations create and maintain a competitive environment Investigate the global economic situation WCI and its ranking provide a frame of reference to asses how nations mange their economic future

WCI – World Competitiveness Index Computed by IMD - International Institute for Management Development A leading provider of Executive Education located in Swiss

WCI – World Competitiveness Index Published in WCY - World Competitiveness Yearbook  World’s most renowned and comprehensive annual report on the competitiveness of nations Ranking and analyzing how a nation’s environment creates and sustains the competitiveness of enterprises

WCY - World Competitiveness Yearbook The yearbook benchmarks the performance of 55 countries Based on 323 criteria measuring different facets of competitiveness Analyzes and ranks the ability of nations Create and maintain an environment that sustains the competitiveness of enterprises

Why are these economies are chosen? All key players in world markets Impact on the global economy In 2007, added two new countries (Lithuania and Ukraine)

Methodology The criteria used to compute the rankings are grouped into 4 main factors divided into 20 sub-factors

Methodology Economic Performance Government Efficiency Business Efficiency Infrastructure

Economic Performance Domestic economy International trade International investment Employment Prices

Government Efficiency Public finance Fiscal policy Institutional framework Business legislation Societal framework

Business Efficiency Productivity Labor market Finance Management practices Attitudes and values

Infrastructure Basic infrastructure Technological infrastructure Scientific infrastructure Health and environment Education

The Golden Rules of Competitiveness Rule 1  Create a stable and predictable legislative environment Rule 2  Work on a flexible and resilient economic structure Rule 3  Invest in traditional and technological infrastructure

The Golden Rules of Competitiveness Rule 4  Promote private savings and domestic investment Rule 5  Develop aggressiveness on the international markets as well as attractiveness for foreign direct investment

The Golden Rules of Competitiveness Rule 6  Focus on quality, speed and transparency in government and administration Rule 7  Maintain a relationship between wage levels, productivity and taxation Rule 8  Preserve the social fabric by reducing wage disparity and strengthening the middle class

The Golden Rules of Competitiveness Rule 9  Invest heavily in education, especially at the secondary level, and in the life-long training of the labor force Rule 10  Balance the economies of proximity and globality to ensure substantial wealth creation, while preserving the value systems that citizens desire

How to use the World Competitiveness Index ?

World Competitiveness Scoreboard Presents the 2007 overall rankings for the 55 economies covered by the WCY The rankings are calculated on the basis of the 246 ranked criteria included in the Yearbook  127 Hard and 119 Survey data The countries are ranked from the most to the least competitive

The relationship between WCI and unemployment

WCI points and unemployment rate WCI points Unemployment rate (%) USA SINGAPORE HK LUXEMBERG DENMARK SWITZERLAND ICELAND NETHERLAND SWEDEN CANADA AUSTRIA AUSTRALIA NORWAY IRELAND CHINA GERMANY FINLAND TAIWAN NEW ZEALAND UK ISRAEL ESTONIA MALASYIA JAPAN BELGIUM CHILE INDIA FRANCE KOREA SPAIN LITHUAUIA CREZH THAILAND

WCI points and unemployment rate SLOVAK HUNGARY GREECE JORDAN COLOMBIA PORTUGAL SOLVENIA BULGARIA ITALY RUSSIA ROMANIA PHILLIPINES UKRAINE MEXICO TURKEY BRAZIL SOUTH AFRICA ARGENTINA POLAND CROATIA INDONESIA VENEZUELA

France VS Korea France: rank:29 (62.561) unemployment rate: 7.7% Korea: rank:30 (61.564) unemployment rate: 3.2%

France VS Korea France(7.7)Korea(3.2) GDP - real growth rate1.8% (2007 est.)4.9% (2007 est.) GDP - per capita (PPP):$33,800 (2007 est.)$24,600 (2007 est.) Inflation rate (consumer prices): 1.5% (2007 est.)2.5% (2007) Investment (gross fixed):20.7% of GDP (2007 est.)27.8% of GDP (2007 est.) Budget:revenues: $1,311 billion expenditures: $1,372 billion Deficit: 61billion (2007 est.) revenues: $269.7 billion expenditures: $256.6 billion Deficit: 13.1billion (2007 est.) Current account balance:-$35.94 billion (2007 est.)$5.95 billion (2007)

WCI & Unemployment rate 2007

The relation between WCI and unemployment rate (2007 calculation) H0: β1=0 HA: β1≠0 Rejection rule: reject H0 if |t| > tc Let α=0.05 degree of freedom = tc: t0.025, 53≈ From Eview, |t|= As |t| > tc, we reject H0. Therefore we conclude that β1 is significantly different form 0.

The relation between WCI and unemployment rate After the calculation, we can conclude that WCI has a weak negative relationship with UNEMPLOYMENT RATE.

Why the relationship between WCI and unemployment rate are so weak? Only a few components of WCI are directly reflected the Employment/Labor Market.

Why the relationship between WCI and unemployment rate are so weak? (con ’ t) The goals of WCI is not measuring the labor market. It ignored many factors which affecting the employment. - The law of protesting labor. - The market power of union. - The welfare of no job workers. - The tradition of the country

The law of protesting labor Example: minimum wages. Theoretically, By raising the wage of unskilled and inexperienced workers above the equilibrium level, minimum wage laws raise the quantity of labor supplied and reduce the quantity demanded. The resulting excess supply of labor represents unemployment.

The market power of union When the unions are having enough market power. When unions push the wages in unionized industries above the equilibrium level, they create an excess supply of labor. On the other hand, unions can bargain with the company and government. It result the firm can not fire the labor easily. (France)

The welfare for unemployed workers the Frictional unemployment. Unemployment insurance is a government policy that, while protesting workers’ incomes  the amount of search unemployment.

The tradition of the country For example, Japan’s tradition is lifetime employment Most large firms offer guaranteed lifetime employment. Retirement age is 55.  Therefore, the Japan unemployment rate keeps in low level.

WCI has a negative relationship with UNEMPLOYMENT RATE The WCI ranking represent a success, economic performance, wealth of a nation. It can Implied that the higher WCI rank  the higher output (GDP)  lower unemployment rate

WCI has a negative relationship with UNEMPLOYMENT RATE Those factors are affecting the output level and GDP level  Such as the Domestic Economy, Fiscal Policy, Productivity & Efficiency. Some factors also affect the quality of labor indirectly  Such as Basic Technological, Health & Environment and Education.

WCI has a negative relationship with UNEMPLOYMENT RATE We can conclude that WCI can explain the unemployment rate. But the relation is not too close.