World economy: 3 risks that hardly anyone talks about

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IE Focus | By Ignacio de la Torre, Professor at IE Business School

The threat of a new recession in the US, the drop in the price of raw materials, and decisions taken by the ECB, might just bring about a turnaround in the world economy.

The traveler Javier Reverte once commented how when he set out on a trip to places he did not know he made a mental provision for scams, so that when a taxi driver overcharged him he didn’t get angry, given that he had already factored the “surcharge” into his provision. Now that we are over the hurdle of the recent European summit, in which for the first time political leaders adopted that old market practice of affording a false sense of happiness by means of pre-martyrdom (i.e. by lowering expectations and then subsequently announcing measures that are not quite that bad), it’s time to shed some light on other sources of basic risk for the world economy, so that we can set up our own mental provisions.  Given that I have always criticized market players for only seeing black swans in the economy, in spite of the fact that the majority of swans are white, I am going to talk about three risks – one negative, one ambivalent, and one positive, because they are the type of risks that will allow us to think that things are not really quite so bad if they do actually happen.

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A reflection on international labor markets

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IE Focus | By Gayle Allard, Professor at IE Business School

We keep hearing about “flexible” and “rigid” labor markets, but what do these terms mean exactly? Does any one model work better than others?

We are hearing a great deal lately about “flexible” and “rigid” labor markets. What exactly does this mean? Is there any particular labor market model that works better than the rest?

Generally speaking a rigid labor market is one in which it is difficult to hire and/or fire workers, because such changes are subject to strict regulations and tend to be extremely expensive exercises. In Spain, up until the labor reform implemented earlier this year, it could take four years for a company to fire a worker who had worked there for many years. These norms seemed to put companies off hiring in general and created a “dual market” where some people were permanent and enjoyed too much protection, while the rest were in a far more precarious position, as well as earning considerably less.  A situation like this tends to reduce a country’s rate of productivity, given that permanent workers have no incentives to be more productive, and temporary employees are unable to produce more because the firm is not willing to invest in training them.

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