Is the Global Competitiveness Index by the World Economic Forum a reliable tool for the design of labor market policies? Evidence from Latin American countries

Abstract

Abstract Most of the competitiveness gap in Latin America is due to its labor market, one of the areas with the highest rates of subjective indicators in the Global Competitiveness Index (GCI). This paper analyzes the subjective component of the GCI in the labor market area and discusses its accuracy for policy advice. We focus on the set of countries that highly rely on the GCI for policy advice and highlight that the perception of business executives of the labor market as rigid contrasts with the significant experience of flexibilization policies undertaken in the region over the past 3 decades. We show that the GCI has been largely constructed with opinion data from large firms, a business sector that accounts for <5% of total firms in the countries of study. Furthermore, the questionnaire exhibits obvious flaws. Thus, we do not find that the GCI provides a solid base for policy advice.