IMD World Competitiveness Index VS Unemployment

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IMD World Competitiveness Index VS Unemployment
Lam Ka Man 06015360 Sung Yuk Ling 06007260 Chow
Cheuk Yin 06007201 Wan Tai Ho 06009077 Au Chun
Lung 06015840
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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

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More precisely

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

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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

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WCI World Competitiveness Index

• Computed by
• IMD - International Institute for Management
  Development
• A leading provider of Executive Education located
  in Swiss

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WCI World Competitiveness Index

• Published in
• WCY - World Competitiveness Yearbook
• Worlds most renowned and
• comprehensive annual report on the
• competitiveness of nations
• Ranking and analyzing how a nations
• environment creates and sustains the
• competitiveness of enterprises

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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

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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)

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Methodology

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

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Methodology

• Economic Performance
• Government Efficiency
• Business Efficiency
• Infrastructure

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Economic Performance

• Domestic economy
• International trade
• International investment
• Employment
• Prices

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Government Efficiency

• Public finance
• Fiscal policy
• Institutional framework
• Business legislation
• Societal framework

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Business Efficiency

• Productivity
• Labor market
• Finance
• Management practices
• Attitudes and values

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Infrastructure

• Basic infrastructure
• Technological infrastructure
• Scientific infrastructure
• Health and environment
• Education

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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

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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

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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

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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

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• How to use the
• World Competitiveness Index?

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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

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The relationship between WCI and unemployment
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WCI points and unemployment rate
WCI points Unemployment rate ()
USA 100 4.6
SINGAPORE 99.121 1.6
HK 93.541 4.3
LUXEMBERG 92.207 4.2
DENMARK 91.926 4.1
SWITZERLAND 90.432 2.8
ICELAND 88.689 2
NETHERLAND 85.864 3.2
SWEDEN 84.119 4.5
CANADA 83.824 6
AUSTRIA 83.184 4.6
AUSTRALIA 82.387 4.4
NORWAY 81.992 2.5
IRELAND 81.856 4.7
CHINA 79.484 4
GERMANY 78.022 8.3
FINLAND 77.337 6.2
TAIWAN 76.05 3.9
NEW ZEALAND 75.506 3.6
UK 75.447 5.3
ISRAEL 74.321 7.6
ESTONIA 74.303 4.2
MALASYIA 74.091 3.1
JAPAN 72.405 3.9
BELGIUM 71.543 7.2
CHILE 68.567 7
INDIA 63.38 7.2
FRANCE 62.561 7.7
KOREA 61.564 3.2
SPAIN 61.208 8
LITHUAUIA 61.071 3.9
CREZH 59.624 5.1
THAILAND 57.758 1.6
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WCI points and unemployment rate
SLOVAK 57.722 11.3
HUNGARY 57.627 7.2
GREECE 57.431 7.9
JORDAN 57.132 13.5
COLOMBIA 56.899 11.2
PORTUGAL 55.984 7.9
SOLVENIA 55.172 4.4
BULGARIA 48.737 6.6
ITALY 48.268 5.6
RUSSIA 47.315 5.9
ROMANIA 47.286 6
PHILLIPINES 47.163 7.3
UKRAINE 45.479 2.5
MEXICO 45.305 3.9
TURKEY 45.221 9.2
BRAZIL 44.706 9.3
SOUTH AFRICA 44.479 25.5
ARGENTINA 43.35 8.9
POLAND 42.734 9
CROATIA 38.523 11.8
INDONESIA 37.41 9.7
VENEZUELA 30.954 8.3
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France VS Korea

• France rank29 (62.561)
• unemployment rate 7.7
• Korea rank30 (61.564)
• unemployment rate 3.2

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France VS Korea
France(7.7) Korea(3.2)
GDP - real growth rate 1.8 (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)
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WCI Unemployment rate 2007
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The relation between WCI and unemployment rate
(2007 calculation)

• H0 ß10HA ß1?0Rejection rule reject H0 if
  t gt tcLet a0.05degree of freedom
  55-1-1tc t0.025, 53 2.0003
• From Eview, t4.37584As t gt tc, we
  reject H0. Therefore we conclude that ß1 is
  significantly different form 0.

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The relation between WCI and unemployment rate

• After the calculation, we can conclude that WCI
  has a weak negative relationship with
  UNEMPLOYMENT RATE.

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Why the relationship between WCI and unemployment
rate are so weak?

• Only a few components of WCI are directly
  reflected the Employment/Labor Market.

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Why the relationship between WCI and unemployment
rate are so weak? (cont)

• 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

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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.

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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)

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The welfare for unemployed workers

• the Frictional unemployment.
• Unemployment insurance is a government policy
  that, while protesting workers incomes
• ? the amount of search unemployment.

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The tradition of the country

• For example, Japans tradition is lifetime
  employment
• Most large firms offer guaranteed lifetime
  employment. Retirement age is 55.
• ?Therefore, the Japan unemployment rate keeps in
  low level.

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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

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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.

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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.