A REPORT ON THE PROMOTION OF EMPLOYMENT IN RESEARCH AND INNOVATION THROUGH INDIRECT MEASURES
Foreword
Key facts and Themes and Executive Summary I-VIII
PART I
INTRODUCTION AND OBJECTIVES
CHAPTER 1 - INTRODUCTION 1
1.1 What are RTDI indirect measures? 1
1.2 Why are RTDI indirect measures important for Europe? 1
1.3 ETAN -- European Technology (Policy) Assessment Network 3
1.4 Objectives of the indirect measures group 4
1.5 Benefits of indirect measures 4
CHAPTER 2 - THE RTDI EMPLOYMENT CHALLENGE IN EUROPE 7
2.1 Introduction 7
2.2 RTD employment in the EU 7
2.3 A surge in demand from the US, and the possible “brain drain” from Europe 8
2.4 The gender issue in EU RTD Employment 8
2.5 The age issue in EU RTD employment 9
2.6 Type of RTD Employees Sought 9
2.7 Forecasting RTD Employment Demand in the EU 9
2.8 S&T Graduate Outputs 10
CHAPTER 3 - TYPOLOGIES FOR ANALYSIS OF INDIRECT MEASURES 11
3.1 Typology of schemes 11
3.2 Typology of firms 15
3.3 Typology of regions (NUTS2) 16
FIGURE B: SUMMARY OF TYPOLOGY OF FIRMS 17
Intelligent technology 17
Figure C : Summary of a Typology of Regions 18
3.4 What types of regions host which firms 19
CHAPTER 4 - REVIEW OF SELECTED INDIRECT MEASURES 21
4.1 Schemes selected for further examination 21
Figure D : Format for Scheme Reviews in Annex 1 22
4.2 Key features of the selected schemes in Member States 22
4.3 Key features of the selected schemes in other countries 24
4.4 Other schemes, and summary 25
PART II
ANALYSIS
CHAPTER 5 - INDIRECT MEASURES: A GENERAL ASSESSMENT OF THEIR IMPLICATIONS AND POTENTIAL 26
5.1 Introduction 26
5.2 Tax measures - General assessment 26
5.2.1 Long vs short-term RTD inducement effects of tax measures 26
5.2.2 What indirect tax measures cannot be expected to achieve 27
5.2.3Administrative costs and the importance of stable and effectively managed RTD tax measures 28
5.3 Indirect measures targeted at personnel and their impact on RTD employment 29
5.3.1 Personnel-based measures can achieve multiple policy objectives 29
5.3.2 Effects on technology laggard SMEs and new RTD performers 30
5.4 The management of employment related RTD schemes 31
5.4.1 Administration and management 31
5.4.2. Management Styles 32
5.4.3. Adding Value 32
5.4.4. Costs 33
5.5 The regional dimension 33
5.5.1 Why is the regional dimension important 33
5.5.2 Regions are very diverse 35
5.5.3 Schemes appropriate for the regional level 35
5.6 The impact of indirect RTD measures on the large firms 36
5.6.1 R&D intensive versus non R&D intensive large firms 36
5.6.2 Indirect RTD measures and MNC linkages with the regions 37
CHAPTER 6 - THE EFFECTS OF INDIRECT RTD MEASURES ON SMEs 39
6.1 Introduction 39
6.2 The effects of indirect measures on SMEs 39
6.2.1 Tax measures 39
6.2.2 Loans and grants for RTD personnel 40
6.3 The effects of indirect RTD measures on the three types of SME 41
6.3.1 Effects on technology developer SMEs and the use of the RTD tax credits as a financial assets for high-tech start-ups 41
6.3.2 The effects on the technology user and technology laggard SME 43
6.4 Other effects of indirect RTD measures on SMEs - external purchase of RTD services ; relationships with larger firms ; and the regional dimension 44
CHAPTER 7 - THE TRANS-BORDER (EUROPEAN) DIMENSION OF INDIRECT RTD MEASURES 47
7.1 Key trans-border dimensions 47
7.2 Critical European dimensions 48
7.2.1 The European measures 48
7.2.2 Areas of Action at EU policy level 49
7.3 Promoting European dimensions 49
7.3.1 European Innovation Fellowships 49
7.3.2 An EU Indirect Fiscal Scheme to Increase RTD 50
PART III
CONCLUSIONS AND POLICY IMPLICATIONS
CHAPTER 8 – IMPLICATIONS FOR POLICY AT THE EU, NATIONAL AND REGIONAL LEVEL 52
8.1 Main conclusions of the report 52
8.2 Checklist for national schemes 53
8.3 Checklist for regional schemes 54
Measures for technology laggard SMEs 54
Measures for leading technology users 55
Measures for technology developers 55
Measures for RTD-intensive multinationals 55
Administration and Management 56
8.4 A European wide scheme 56
Annexes
Annex 1 - Some Selected Indirect Measures. 60
Annex 2 – Definitions of R&D, Human Resources in S&T and Innovation 81
Annex 3 - Bibliography of the ETAN-Indimes Group 85
Supplementary Report
International compendium of indirect schemes & measures for supporting RTD in enterprises (300pp)on Internet URL: http://www.cordis.lu/etan/src/document.htm
EUROPEAN TECHNOLOGY ASSESSMENT NETWORK –
ETAN
A REPORT ON THE PROMOTION OF EMPLOYMENT IN RESEARCH AND INNOVATION THROUGH INDIRECT MEASURES
PART I
INTRODUCTION AND OBJECTIVES
CHAPTER 1 - INTRODUCTION
1.1 What are RTDI indirect measures? [1]
By indirect measures we mean all sorts of schemes that sustain (and reduce the cost of) RTDI investments. Unlike direct measures, they are not targeted to a particular scientific or technological theme, discipline or sector. Indirect measures can take the form of tax incentives (most typically a tax credit or enhanced expense allowance on RTD expenditures), grants or loans for personnel or, far less importantly, other forms such as support for the technological infrastructure or electronic networks. Figure G in Chapter 4 below shows a full picture of the various types of indirect measure. One important and distinctive feature of tax-based indirect measures is that they take a tighter definition of what activities are allowable than is the case with some of the grant or loan schemes. We argue, later in the report, that possible changes in definition, i.e. how far the definition of RTD stretches towards the “Innovation” element of RTDI, may be an important consideration when looking for ways of enhancing the impact of indirect measures.
1.2 Why are RTDI indirect measures important for Europe?
Europe lags behind its major competitors in overall corporate R&D. In the growing knowledge economy it is critical to ensure the availability of sufficient skilled human resources for RTDI and that these resources be fully utilised by manufacturing and service businesses. Yet, this is an area where the European disadvantage is particularly apparent. In the EU researchers account for only 0.5% of the labour force compared with 0.7% in the US and 0.8% in the developed Asian economies. The figures for researchers in industry are even more startling: 0.2%, 0.6% and 0.5% respectively. Taken together, the EU Member States have only slightly more researchers engaged in industrial R&D than Japan and far less than the US.
Indirect measures to support RTDI can play an important role in encouraging European companies to invest more resources in these. Amongst other sources, the previous report for DG XII by SQW et al. suggests that indirect measures have a positive impact on the level of R&D performed without excessive administrative costs.[2] As a matter of fact, these measures, and particularly RTD tax incentives, can explain important differences in industry RTD costs in European countries vis-à-vis other leading regions. For example, incentive structures mean that the “present value of before-tax income necessary to cover the initial cost of R&D investment and to pay the corporate income taxes” is 1.045 in Germany (the highest in the EU), between 0.92 and 1.03 in most other European countries; compared with 0.875 in the USA and as little as 0.775 for SMEs in Canada. Only in parts of Italy (but mainly for SMEs) and in Spain do EU Member States reach such low levels as in Canada and the USA[3].
Compared to direct measures, indirect schemes are less "distortionary" in the sense that they let the market and the individual firms take independent decisions about where to allocate their RTDI Euros, without interfering in specific choices about sectors or disciplines to be pursued. But tax or other indirect incentives need time to feed through to the economy. For example, the US tax credit cost the Treasury $2bn in 1997, and this is estimated to lead to an expanded production capacity of only $2bn by the year 2000, and of $13bn by 2010.[4] In addition, this is expected to help create more high-wage jobs, and boost wages in low-tech jobs.[5]
Most of the existing indirect measures outside Europe take the form of RTD tax credits or other tax incentives. Within Europe one also observes a variety of schemes targeted to RTDI employment. To anticipate somewhat the main conclusions of this report, we believe that such personnel-based RTDI indirect schemes should be particularly encouraged in European countries and/or regions. In the first place, personnel costs are now the major component of RTD expenditure, and their share is likely to rise in a more knowledge-oriented economy. We have already noted that Europe lags behind competitor countries in the proportion of researchers in the total workforce. Relatedly, there are growing concerns about an imminent European “skill drain”, which could be mitigated if it cost firms less to pay R&D personnel.
Apart from the issue of cost, there is one of unfamiliarity with the employment of scientifically trained staff, especially in European SMEs. Simple schemes that help the employment of young researchers on flexible terms and possibly with "expert" support, can compensate for over-rigid labour markets and encourage firms to consider hiring more qualified personnel. Since SMEs cover a large share of European industrial activities, and they constitute the backbone of many European regional economies, there could be sizable direct effects on employment. Moreover, by improving the international competitiveness of the SME sector many more jobs could be created indirectly.
More generally, while there are quite a few indirect measures to support RTD in Europe, we shall argue in this report that important areas for further improvements include:
· a better understanding of how these measures interact in different economic contexts
· the implementation of complementary measures
· cross-fertilisation of approaches, comparisons of experience, benchmarking, and diffusion of good practice in scheme design and implementation, especially across regions and countries (trans-regional and trans-national learning)
· the creation of some new indirect measures.
1.3 ETAN -- European Technology (Policy) Assessment Network
Annex 1 of the Council Decision 94/915 states that ETAN (see www.cordis.lu/etan for more details) should make the best possible use of the available expertise from various socio-economic circles. ETAN established this particular expert Working Group to address the policy issues and best practices of certain indirect measures for the promotion of employment of research and innovation personnel, and their potential trans-border dimension.
The ETAN group met formally three times over one year, working mainly off-line and using electronic media to exchange information and texts. The meeting’s main purpose was to discuss, as a group, general directions and approach. The diverse nature of the field was emphasised by the different working patterns of the members and the consequent difficulty of having common “dates” available. Nevertheless, the group examined a great deal of relevant literature and compiled a large corpora of data (see the “Compendium” volume[6]). It recommends to the Commission that the “Compendium” of schemes be maintained periodically and disseminated via a web-site, as it is probably currently the largest information base anywhere on this topic.
The Group identified the possibilities and the limitations of best practice in indirect schemes and especially of those that impact employment; how they can be used across contexts; and if there is a broader European potential for trans-border actions. The ETAN group sought to explore good practice in the design and operation of indirect measures to increase RTDI activities within companies.
This work builds on and extends an earlier report produced for DGXII by SQW et al. which provided a descriptive inventory of indirect measures within Member States. The ETAN group sought to provide detailed up to date insights into a smaller number of especially interesting schemes; highlighting what has worked well and why. The emphasis is on measures that are “horizontal” in nature, with little, if any sectoral targeting, and that reduce the employment costs of RTDI personnel incurred by companies.
A related goal of this report is to spread some of the learning accrued from operating specific schemes. The report also seeks to touch on implications for topics that are of current interest in national and international policy debates such as the brain drain from Europe to the US; the forthcoming accession of Central European States to the Community; and the regional implications of national incentives.
1.4 Objectives of the indirect measures group
The Group focussed on three key questions:
· what are the elements of best practice and how can they be diffused across contexts?
· what is the impact on RTDI related employment?
· is there demand for, and an added value in, trans-border actions?
With these in mind, the Group addressed the following more specific questions:
· where is the main impact of these schemes in the economic fabric, and on other national and EU policies?
· what are the successful components of employment focused indirect measures?
· what are the elements that define good practice, and do they have characteristics that are robust?
· what are the elements that generate needs and pressures for international co-ordination and co-operation?
· how can good-practice elements be applied elsewhere, complement other policies and initiatives, and what are the current and future practical problems of horizontal transferability and of introducing a trans-border dimension?
1.5 Benefits of indirect measures
Indirect measures can produce several benefits, at different levels. These include:
· benefits to the individuals in terms of employment, well structured jobs, learning environment (especially where there are add-ons such as expert monitoring/guidance that are part of the indirect measure)
· benefits to the firms which include both hard benefits such as productivity, turnover, value added, employment, and "soft" benefits. An example of the latter is that, because such measures may not imply permanent commitment, can help hire a "bright" person, possibly young, who does not need to be fitted into the hierarchy – a particular benefit in family-owned SME. Another soft benefit may be giving greater respectability to what may turn out to be only a short term job. A further benefit is that by taking on a bright youngster may increase the confidence/ability of the firm to use outsiders.
· benefits to the regional labour market through increased labour mobility, a larger local pool of qualified scientists and engineers, an increased likelihood of long-term retention in the area
· benefits to the national economy in terms of luring bright young people into industry. At this level there may be "beggar my neighbour" effects if there are national shortages of particular skills. But, if skillfully publicised, the attractiveness of the indirect measures scheme may also encourage young people to undertake engineering and technical studies in higher education.
Another way to look at the benefits of indirect measures is in terms of the timescale of the RTD activity that they have supported, for instance: