IMD World Competitiveness Index VS Unemployment

1. 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

2. 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

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

4. 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

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

6. 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

7. 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

8. 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)

9. Methodology • The criteria used to compute the rankings are grouped into 4 main factorsdivided into 20 sub-factors

10. Methodology • Economic Performance • Government Efficiency • Business Efficiency • Infrastructure

11. Economic Performance • Domestic economy • International trade • International investment • Employment • Prices

12. Government Efficiency • Public finance • Fiscal policy • Institutional framework • Business legislation • Societal framework

13. Business Efficiency • Productivity • Labor market • Finance • Management practices • Attitudes and values

14. Infrastructure • Basic infrastructure • Technological infrastructure • Scientific infrastructure • Health and environment • Education

15. 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

16. 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

17. 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

18. 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

20. How to use the World Competitiveness Index?

23. 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

28. The relationship between WCI and unemployment

29. WCI points and unemployment rate

30. WCI points and unemployment rate

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

32. France VS Korea

34. WCI & Unemployment rate 2007

35. The relation between WCI and unemployment rate (2007 calculation) • H0: β1=0HA: β1≠0Rejection rule: reject H0 if |t| > tcLet α=0.05degree of freedom =55-1-1tc: t0.025, 53≈ 2.0003 From Eview, |t|=4.37584As |t| > tc, we reject H0. Therefore we conclude that β1 is significantly different form 0.

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

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

38. 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

39. 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.

40. 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)

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

42. 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.

43. 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

44. 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.

45. 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.