Underpinning all the business that gets done around the world are the workers who make it happen. When labor markets tighten and companies have a hard time hiring the talent they need, it’s difficult to get the work done. When a crisis like a pandemic knocks an economy off its footing, the speed of its labor market rebound is a key factor to how quickly the overall economy gets back to business. Labor market resilience has to be an important component of an economy’s dynamics.

In February, I participated in a panel discussion focused on just this issue of labor market resilience, marking the release of the 2022 Global Labour Resilience Index (GLRI).This annual report led by Whiteshield Partners evaluates national labor markets based on their ability to absorb, adapt, and transform, structurally and cyclically, in response to various types of shocks, such as pandemics, technological disruptions, and even green transitions. The researchers compile data from the United Nations, the World Economic Forum, World Bank, and the International Labour Organization. They use a whole-country approach to rank the economies of 145 countries, emphasizing the key capabilities required for resilience, the goal being to put humanity at the center of all policies. The panel was hosted by Fadi Farra, Managing Director at Whiteshield and Jennifer Blanke, former chief economist of the World Economic Forum, and it included Sir Christopher Pissarides, a Whiteshield Director and Nobel Prize winner in Economics.

Sub-titled “Stagnating resilience,” the 2022 report announced three core findings: That global labour market resilience is stalling, that some economies have managed to rebound, and that too many countries are being left behind. You might find it intriguing to explore the full rankings and interpretations here. (Spoiler alert: The US is ranked 15th, while Denmark ranks first in the world overall. The U.S and Canada as a combined region, however, outrank all other regions across the globe.)

What the panel wanted me to do, perhaps not surprisingly, was discuss the need to mobilize capital in order to invest strategically to build resilient labor markets, especially in unforeseen economic, social, or health crises. How to do this, when governments can only do so much? It has to be private capital.

How to mobilize the kind of private capital needed? Understand and mitigate key risks.

As an emerging markets capital market scholar, I use a finance lens to interpret the GLRI indices. The investment risk framework I built in my 2015 book Cracking the Emerging Markets Enigma examines specifically the attractiveness of an emerging market for external capital. (Another spoiler alert: my book’s core thesis is that emerging markets are actually not characterized by high rates of economic growth as many believe, but more by high rates of potential growth that are hampered by underdeveloped capital markets.) Emerging markets need the active engagement of multinational corporations via direct foreign investment and foreign portfolio investors to help support the nascent domestic pools of capital to fund their economic growth. The more significant the institutional risks are, the less willing is the external investment flow.

My take is that an economy’s labor market dynamic – its resilience – is likely closely correlated with the institutional risks that impede its external capital flows. Operational inefficiencies, foreign participation restrictions, poor governance or transparency rules, weak investor legal protections, and political instability can all create severe obstacles. A country that scores poorly in terms of political risk, market capacity, open access, good governance, robust legal protections for investors is undoubtedly one that has weaker absorptive, transformative, and adaptive labor market attributes – poor labor market resiliency. I expect that weaker capital market institutions will impede growth even if labor markets are resilient, but it may be that significant labor market resilience gaps will similarly impede growth regardless of how welcome global capital is. Both are necessary ingredients for underfunded EMs to realize their full economic growth potential. The new demand for net-zero transition just makes this all the more imperative.

Much of this discussion about labor market resilience reminds me of conversations I had had with colleagues, Nancy Chau, Arnab Basu, and Ravi Kanbur, three of our leading lights in development economics in Dyson’s Applied Economics & Policy group, about a recent paper of theirs published in the Oxford Economic Papers. They do a deep-dive into the policy debates across the developing world about high-wage employment and unemployment rates overall. They build a model with various stylized features of developing country labor markets, most notably the wide range of skills among youth versus adults, and the self-employed. While they do not refer to labor market “resilience” in their paper, their conclusion is that these complex features of the labor markets matter a great deal.

Responsible investing gains momentum

On February 23, the European Commission published its proposal for what they are calling a Corporate Sustainability Due Diligence Directive. In addition to another complex alphabet soup of letters (CSDD), the world gets another transformative step forward that economic activities are conducted in a responsible manner. CSDD got an immediate boost of support from the UN Principles of Responsible Investment – the UN’s PRI group are central contributors to this important understanding and movement, focusing on the shared long-term interests of signatories, economies, the environment, and society. The Principles establish six guideposts for investors committed to incorporating ethical environmental, social, and governance impacts of financial mobilization.

These are revolutionizing the finance sector, and not a minute too soon.

This brings to mind my excellent conversation with Hilary Maxon (Dyson ’99, MBA ’05) at last November’s launch event for our 570 Lexington Avenue space. Hilary is Executive VP and CFO of Schneider Electric, a European leader in digital transformation of energy management. Hilary chose to join Schneider five years ago, largely due to her own alignment with the company’s two-decade ESG commitment and leadership. I particularly appreciated Hilary’s observation about sustainability and risk: “Sustainability, and really all of ESG, are actually really key elements to track whether a company is paying attention to its medium and long-term risks and opportunities.”

Hillary is currently heading a team which designed and successfully placed a €650 million convertible bond linked to the firm’s ESG leadership inclusion goals: if a target percentage of leadership is not made up of women by 2030, the company will pay a premium to bondholders. Her finance team was thrilled to work on this, and the firm culture is engaged, in a new way, in its performance. Schneider’s KPIs are tied to broad climate commitments: net-zero C02 operations by 2030 and carbon neutrality across the value chain by 2040, and then full net-zero across the value chain in 2050. The firm’s own Back to 2050 report is a compelling read, detailing projected long term changes in energy usage, carbon emissions, expectations, technologies, clean energy, smart EV charging stations, and more.

I was of course pleased when Hilary brought all of this back to our students and alumni. “It’s those of us that are in university today and business school today that are really going to be the leaders that participate strongly in that next three decades toward 2050. It won’t be me but some of the people on this (webinar) call that will be really doing those steps, which may sound crazy today, that we talk about in that 2050 report.”

I’m proud of our ability to integrate what the academy is doing with what our colleagues in industry are doing to change things. Business education is being transformed right now. We’re training the next generation, and our consciousness is being raised to focus on the kinds of leaders we need.

And I couldn’t sign off without mentioning:

Linda Barrington’s promotion to Associate Dean of Strategy and Societal Impact. I’m thrilled to announce Linda Barrington’s promotion to Associate Dean of Strategy and Societal Impact. Working closely with me, the new College Dean’s Council, senior administrative leadership, and appropriate working groups and faculty committees, Linda will guide strategy formulation and implementation across our four college channels: (a) curricular and co-curricular corporate- and community-engaged experiential learning; (b) the external engagement of our centers, institutes, initiatives, and themes; (c) external education programming (eCornell, executive education, and professional development training); and (d) active corporate, NGO, and not-for-profit collaborations and association memberships. She’ll drive, communicate, and coordinate strategic priorities and initiatives, and will advise on developing college processes and operations that underpin our external impact at home and around the world.

Sharing solidarity and support for our eastern European fellows. The news is dominated by the needless and violent upending of civilian life in Ukraine. I myself have family in the region and they’re in my thoughts constantly. My Cornell colleagues and I will remain informed, and are committed to sharing our expertise and understanding of the financial tools and systems being deployed to punish President Putin’s aggression, as well as broader economic and political sanctions which may be used. If you did not get to participate in the special panel with colleagues Eswar Prasad of the Dyson School, ILR’s Erica Groshen, and Government’s Sara Kreps, do go take the time to watch it.

Yours,
Andrew