RWI : News RWI ESSEN. Editorial: Coming up 2004 Ruhr Graduate School in Economics. Brain drain migration. Small and medium enterprises

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1 Editorial: Coming up 2004 Ruhr Graduate School in Economics RWI : News Brain drain migration Small and medium enterprises Conference report: Female entrepreneurship in Eastern Europe New Discussion Papers New staff members No. 2/2003 RWI ESSEN

2 2 RWI : News 2/2003 Coming up 2004: Ruhr Graduate School in Economics (RGS) Over the past several years, a number of graduate schools in natural and technical science have been founded, assisted by the Department of Science of North Rhine- Westphalia. The main function of the research schools is to train graduates. The training complements bachelor and master programs and is currently established as a third type of qualifications that German universities offer. To foster the development of graduate programs, the RWI plans to establish a Ruhr Graduate School in Economics (RGS). The RGS will have an international focus with emphasis on empirical and methodological research. The cooperation between the economic faculties of the neighboring universities of Bochum, Dortmund and Duisburg-Essen will provide the basis for the new Graduate School. This combination of regional resources and skills is designed to be a model for the collaboration of universities and external institutions. Details about the conditions of study and graduation have yet to be worked out, but it is clear that the students will graduate within three years. There will be between 20 and 25 scholarships, which means that about eight graduates each academic year will be accepted. In addition, guest researchers will aid the research activities of the RGS. The RGS is scheduled to start the beginning of the winter term 2004/2005 (which runs from September until February). Scholarships applications are due in spring 2004 and scholarship recipients will be announced in the summer of Raimund Hasse Research News Brain drain migration can be a positive-sum game It is unclear how the migration of high-skilled workers affects the economic productivity of the countries of emigration because of a lack of data sources. There is evidence that the countries of origin and advanced economies can benefit from the migration of high-skilled workers. Government policy plays an important role in this process because its decisions set the general framework. The so-called brain drain (the discrimination of poor countries by the migration of their elites) and its consequences have been widely discussed. The paper of Michael Rothgang and Christoph M. Schmidt reviews the current theoretical literature and examines the available empirical evidence. They conclude that the migration of high-skilled workers seems to have accelerated since the 1990s, but that the consequences of this development are unknown. The analyses reveal that the brain drain can be a problem especially for small poor countries who tend to loose more and more of their most skilled workers. In addition, there are active recruitment policies for high-skilled workers operating in major advanced economies. With the New Economy short-time migration has increased Since the beginning of the New Economy at the beginning of the 1990s, the sec-

3 RWI : News 2/ tor of information and communication technologies (ICT) has been increasingly affected by migratory movement. Many of the advanced economies expect economic surges from the immigration of highly qualified experts. An example is the German Green Card, which was implemented by the German government in Unlike former migration movements, the migration in the ICT-sector often takes place for just a limited time. Afterwards, the high-skilled workers return to their countries of origin. This return migration can lead to a brain gain for the countries of origin, because of the application of knowledge that has been gained abroad. Thus, economic growth can be initiated in developing countries. However, statistical analysis lends no support to the brain-gain hypothesis that higher income opportunities abroad indicated by elevated high-skilled migration rates also increase incentives for post-high school education. If development continues most countries will benefit Scientists believe two developments of international migration movements are possible in the future. The present worldwide recession could lead to increasing pressure on governments to stop high-skilled migration, especially from developing countries. This could cause a decrease in net long-time welfare. On the other hand, the migration of specialists might proceed. In the case of the latter, most participating countries should be able to benefit from the associated welfare gains. Adult Population Levels with Tertiary Education 1995 to 1998 averages US Germany France Italy UK Canada Sweden Foreigners Government policy plays an important role in future development, it adjusts migration and therefore determines if a country provides an environment that attracts high-skilled immigrants. Michael Rothgang, Christoph M. Schmidt Nationals Source: OECD 2001: Trends in International Migration. The New Economy, the Impact of Immigration, and the Brain Drain, Contribution to New Economy Handbook, Academic Press Information: Rothgang@rwi-essen.de RWI ESSEN Most small and medium enterprises act at short notice In her professorial dissertation, Strategies, SME and Environment, Friederike Welter (RWI) analyzes the characteristics and emergence of strategies used by small and medium enterprises (SME). Most of the German and East-European businesses studied rely on short-term strategies which are affected by their surroundings. Small and medium enterprises (SME) are more strongly influenced by the environment than major enterprises. Models and the origins of SME strategies have not been questioned scientifically to date. This new research will fill the gap. The dissertation of Friederike Welter, Strategies, SME and Environment, has been accepted by the German university of Lueneburg in The system-comparing empirical scientific approach provides a broad insight into the strategies of SME in Germany and Eastern Europe.

4 4 RWI : News 2/2003 Reacting versus constitutive style In its systematic analysis of entrepreneurial courses of action, the survey reveals two basic versions of strategies which are ideal types of poles of a continuum of strategic orientations: a reacting and a constitutive style of strategy. Most of the SME research used a mix of both styles of strategy, phases of acting and reacting alternated. In most cases, the reacting style prevailed, especially in SME that are emerging, small and not growth-orientated as well as in new, insecure or in turbulent surroundings. The constitutive style is mostly used by growth-orientated, older, larger SME and in complex surroundings. Vast differences of strategy appeared between the studied enterprises in transition in Germany and East European countries. In Eastern Europe, rigorous restrictions and standardizations frequently lead to economically destructive strategies of avoidance, e.g. the partial shift of production into an underground economy. The environment fosters the enterprise s use of short-time strategies. Most of the German SME which where covered in the study also used short-term strategies. Compared to East European enterprises, the transition to a more active strategy turned out to be smoother because of a more stable environment and rare external shocks. Furthermore, the study affirms the influence of economic policy, which provides the general conditions for long-term entrepreneurial action. Friederike Welter RWI ESSEN Friederike Welter Strategien, KMU und Umfeld Handlungsmuster und Strategiegenese in kleinen und mittleren Unternehmen Heft 69 Strategien, KMU und Umfeld Handlungsmuster und Strategiegenese in kleinen und mittleren Unternehmen, RWI : Schriften, vol. 69 Information: welter@rwi-essen.de RWI : Schriften Awarded research contracts Preliminary study of the evaluation regarding the implementation of the proposals of the Hartz Commission on Labour Market Policy. Research project by order of the German Federal Ministry of Economics and Labour. Contact: Dr. Michael Fertig. In collaboration with the Institut für Sozialforschung und Gesellschaftspolitik(ISG), Dresden. Duration: 3 months. Influence of research and innovation on employment. Research project by order of the German Federal Ministry of Economics and Labour. Contact: Dr. Jochen Dehio. Duration: 12 months. The impact of networks regarding the formation of companies by female entrepreneurs. Research project by order of the German Federal Ministry of Economics and Labour. Contact: PD Dr. Friederike Welter. In collaboration with the Landesinstitut Sozialforschungsstelle Dortmund. Duration: 9 months. Living standard deficit of employees ( Working poor ). Research project by order of the German Federal Ministry for Health and Social Security. Contact: Dr. John P. Haisken-DeNew. Duration: 10 months.

5 RWI : News 2/ Lectures and Conferences Workshop about the situation of female entrepreneurship in Ukraine, Moldova and Uzbekistan The results of the international research project Female entrepreneurship in transition economies: the examples of Ukraine, Moldova and Uzbekistan were presented on July 11th at Chisinau, capital of Moldova. The project is a cooperative effort between RWI, National Institute of Economy and Information of the Ministry of Economy of Moldova Republic (NIEI), Steps Centre National Academy of Sciences, the Kiev trade association of female entrepreneurs Tadbirkor Ayol, Uzbekistan and Center for Enterprise and Economic Development Research (CEEDR), University of Middlesex Business School. The project has been supported by INTAS, which is an association founded by the European Union to foster the scientific cooperation between East and West. Female entrepreneurs in the three countries showed many similarities: 1) the enterprises are mostly small (up to ten employees); and 2) most of them work at a regional level and operate in the sectors of manufacturing and trade. A frequent constraint for female entrepreneurs is lack of capital. Female respondents in all three countries consider business environment in their country unfavorable. Many of them shift towards the underground economy because of the unsatisfactory activity of officials (especially corruption), no transparent taxation and legislation. Particularly in Moldova and Uzbekistan, businesswomen struggle with the burden of arranging family and job. Another challenge is the traditional role model that expects women to concentrate on household duties. The lecture Women Entrepreneurs in Moldova: Characteristics, Problems, Policy Issues, by Elena Aculai of NIEI, described the situation in Moldova. The female entrepreneurs interviewed showed a lower inclination to risk than their male colleagues (who were also interviewed). They also had less training and experience in management. For Ukraine, the lecture Ukrainian women entrepreneurs: Similarities and Differences by Nina Isakova (STEPS), revealed a different situation. More than a third of the interviewed businesswomen had received management training and management experience. Most of them were supported by their husbands and families. Almost a third (29 percent) of women disliked any special measures to support women in business. Project-Team (left to right): Nelli Rodionova, Elena Aculai (both from Moldova), Friederike Welter (RWI), Charos Maksudova (Uzbekistan), David Smallbone (UK), Damira Mirzakhalilova (Uzbekistan), Nina Isakova (Ukraine)

6 6 RWI : News 2/2003 The lecture of Natalja Schakirova ( The Business Women Association in Uzbekistan ) showed how the results of the latest research are used for the work of the association. David Smallbone gave a lecture on policy implications and recommendations regarding women entrepreneurship in transition economies. The researchers discussed the results with participants from Women s Organizations, ministries, support agencies and local representatives. All attendants agreed for further enhancements in justice and economic policy to tap the full potential of female entrepreneurs in economic development and transforming the three countries. A short report (in English and Russian) including the fundamental research results and policy implications will be available from Ms. Welter in October. Information: welter@rwi-essen.de Publications Active labour market policy has a limited potential The article examines the influence of active labour market policy (ALMP) on unemployment, in particular it contrasts the success of the current programs in the US and Europe. It turns out that the evaluation culture of the programs is better developed in the US. In Europe, many of the programs are not evaluated or evaluation results have a low impact on future policy. Overall, the analysis shows that even well targeted programs lead to modest effects. The article concludes that ALMP can only be one ingredient in a set of possible policy measures aimed at labor market reform. Furthermore, program effects are very heterogeneous across types of interventions and target groups. Training and job search assistance can be effective, but unemployed youth are typically difficult to assist. Jochen Kluve and Christoph M. Schmidt: Can training and employment subsidies combat European unemployment? Economic Policy 2002: RWI : Discussion Papers (1) Michael Fertig and Christoph M. Schmidt, Mobility within Europe The Attitudes of European Youngsters Intra-European migration is relatively low. The aim of this paper is to identify the major obstacles for increased intra-eu migration flows, particularly among the potential migrants of the future, European youngsters. The study analyzed which factors determine the decision to migrate, the economic performance of immigrants in the destination country and the economic impact of immigration on the destination country. The results are compared with the Eurobarometer survey conducted among young Germans, French and English between 15 and 24 years of age about their intention to migrate. Young Europeans who are still studying or who have a highly educated parental background have a stronger tendency to look at the European Union as a common labor market. Among the polled youngsters, German adolescents showed the least interest in working abroad. Ac-

7 RWI : News 2/ cording to the survey, information shortfalls, traces of xenophobic tendencies, and the perception of prohibitively high levels of bureaucratic red tape are the heaviest barriers to migration. (2) Michael Fertig, Educational Production, Endogenous Peer Group Formation and Class Composition Evidence From the PISA 2000 Study Unlike the majority of empirical papers on school quality, this paper analyzes the effect of achievement heterogeneity on student achievement and its impact on composition rather than only the effect of class size. In this work, individual-level data from an internationally conducted standardized test, the PISA 2000 study, is utilized. The sample for the paper consists of 136 US schools with more than ten students. The study found that heterogeneous peer groups have a strong detrimental impact on individual achievement. These findings are relative from the perspective of economic and social policy. First, if it is possible to transform low ability into high-ability students by allowing those with the lower ability to be around those with higher ability, then it would be efficient to have integrated classes. Second, segregated classes might exacerbate the effect of educational and, therefore, income inequality because highly able students benefit from segregation whereas low-ability students lose. (3) John P. Haisken DeNew and Conchita D Ambrosio, ICT and Socio-Economic Exclusion The paper examines the impact and association of ICT on socio-economic exclusion in multi-country empirical analysis (Germany, Great Britain, Italy, Norway and Israel). The data source is the e-living panel data, that includes pan-european longitudinal household panel studies about the use of ICT. The strongest effects come from computer usage at the workplace: One can identify a computer wage premium of anywhere between 16 percent in Germany and 38 percent in Israel on average. Only in Norway does use of the Internet at the workplace lead to a positive wage premium (on average) of 11.5 percent. The paper also takes a look at the risk of social exclusion. In Great Britain and Israel, those not having a home PC are much more likely to be considered socially excluded. In Israel, those not having a cell phone have an increased risk of 44.1 percent of being socially excluded, in Britain and Italy the increased risk is around 25 percent. (4) Michael Fertig, Who s to Blame? The Determinants of German Students Achievement in the PISA 2000 Study The publication of the OECD report on the PISA 2000 study started a public outcry in Germany. The results presented by the report consist mainly of country averages which do not take into account any other covariates of individual student achievement. This paper provides a comprehensive econometric analysis of the association of the individual-level reading test scores of about 3,700 German students from 172 schools with individual and family background information and with characteristics of the school and class of the 15- to 16-year old survey respondents in Germany. The results demonstrate that many popular explanations, like the substantial share of non-citizens among the participating students, are not supported by the data. Rather results point towards the considerable impact of schools that want a more homogenous body of students similar in their educational achievement (for more about this topic see RWI : Discussion Paper No. 2). Furthermore, there is also a substantial impact of the students parental situation.

8 8 Personalia New staff members PD Dr. Raimund Hasse started his work at the institute on July 15. He coordinates the constitution of the Graduate School, which the RWI plans to establish in cooperation with universities of the Ruhr Basin (see p. 1). Dr. Hasse is a sociologist who studied in Bielefeld and Madison, Wisconsin. His professorial dissertation dealt with the manifestation and consequences of institutional changes on policy. Since August 1, Dr. Boris Augurzky is research coordinator of the RWI. The main focuses of his work are health economics, labor market economics and research management. He is an econometrician and studied economics and mathematics at Heidelberg. He has worked as a consultant for The Boston Consulting Group for two years before he came to the RWI. Also since August 1, Dirk Engel strengthens the research team of the RWI. As research associate, he focuses on enterprise development, especially corporate financing and corporate strategy in emerging industries. Dirk Engel studied economics at the Europa- Universität Viadrina Frankfurt (Oder). His dissertation was Venture capital for emerging enterprises. RWI : News No. 2/2003 (September 2003) Publisher: Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Hohenzollernstraße 1/3, Essen, Phone +49 (0) 201/ , Fax -200, mail rwi@rwi-essen.de All Rights Reserved Editor: Prof. Dr. Christoph M. Schmidt, Ph.D. Editorial office: Sabine Weiler (Phone -213), Joachim Schmidt ISSN