As a part of the Economic Freedom of the World project, I'm always on the lookout for ways to measure the severity of regulations.

In the area of labor market regulations, we've been using, among other things, some survey data from the World Economic Forum's Global Competitiveness Report (GCR). One question asks business executives whether "hiring and firing workers is (1 = impeded by regulations, 7 = flexibly determined by employers)".

Recently the World Bank has begun publishing its Doing Business In (DBI) reports in which they report a "Flexibity-of-hiring index" and a "Flexibility-of-firing index" based on a reading of the country's formal labor laws.

I wondered if the GCR data conformed with the DBI data since they both purport to measure the same thing.

In the GCR data higher numbers indicate more flexibility, while in the DBI data higher numbers indicate more rigidity (I used the average of the two DBI indexes), so we expect a negative correlation between the two series. The scattergram below shows the results. While the regression line slope is negative (and "statistically" significant) the overall fit of the regression is so poor that I'd conclude that these two measures don't really run together all that much.

This begs the question. Who should we believe? The business executives or the lawyers?

My money's on the business executives in the GCR survey.

N.B.: I have a paper out in the Journal of Labor Research about measuring labor market flexibility.