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PROCEEDINGS 79
Panel III
Human Resources, Competition for Manpower,
and the Internationalization of Labor
Moderator:
Irwin Collier
John F. Kennedy Institute
Free University Berlin (FU Berlin)
Mr. Collier introduced the third panel, noting the “smooth transition”
from the discussion of the previous session on the globalized market for talent.
“Human resources,” he said, “as we have seen, are very much a constraint or an
opportunity for innovation policy.” He then introduced the two panelists, Klaus
F. Zimmermann of the Institute for the Study of Labor (IZA) and the German
Institute for Economic Research (DIW Berlin), and Jan Muehlfeit of Microsoft
Corporation.
THE HUMAN RESOURCE CHALLENGE
Klaus F. Zimmermann
Director, Institute for the Study of Labor (IZA)
and
German Institute for Economic Research (DIW Berlin)
Dr. Zimmermann said that his current research emphasis on migration
and labor markets was “well suited to this important gathering,” and that in the
future, human resources “will be even more than in the past the central part of
innovation creation, along with the use of new products and services.”
A point he emphasized was that the success of new ideas has to do not
only with the “intelligent and market oriented creation of products and services,”
but also with the willingness of an educated population to use what is invented.
“So I think human capital is in the center of innovative activity. If you talk about
innovation policy, you cannot forget education policy, migration policy, and
mobility policies. All are issues where we see lots of challenges coming,
especially in Europe, which is mobile and has deficits in its education system.”
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80 MEETING GLOBAL CHALLENGES
This was particularly true for Germany, he added. “On the other side of the
Atlantic, the United States has at least a legendary tradition in immigration
policies that attract the best of the world. But there is the question of what
Germany can provide in this debate. I don’t think we should be pessimistic, but
we have things to discuss. We have to understand that the future depends on a
common effort to face the challenges, especially from the rise of Asia.”
Migration and Innovation
Dr. Zimmermann said that the IZA, based in Bonn, has the largest
corps of scientists in economics in the world—about 1,100—who cooperate
with researchers in United States and China. He summarized his work at IZA
and the University of Bonn from the position that innovation, migration,
networks, and mobility go together. More specifically, he said, people with
diverse socio-cultural backgrounds may boost the creation of new ideas,
knowledge spillovers, entrepreneurship, and economic growth. In other words,
innovations are based on knowledge and human capital. Migration may cause
innovations, for many reasons, such as destroying and restructuring old ideas
and replacing them with new ideas. Also, he said, labor mobility carries
knowledge. “Innovation is a product of knowledge and ideas being transmitted
between people with different information sets through personal contact.”
He cited several recent IZA Discussion Papers that elaborated on these
points. In the first of them “the authors have convincingly found that it’s not the
quantity of migration but the diversity of the immigrant population which has
stronger effect on patent applications. Also, the average skill of immigrants
matters very much. Given that Europe attracts not the skilled migrants of the
world, this is very important finding.”16
The second paper Dr. Zimmermann emphasized examined labor
mobility and concluded that its effects do not depend on whether people move
from outside or inside the country.17 “It’s true that the exchange of people
between companies is very important,” he said. “If new people come in, it
increases the likelihood of innovation—especially if they come from innovative
companies.” This may seem obvious, he suggested, “but it’s also true that if
someone leaves a company and goes to another innovative firm, this also has
positive effects on the innovative activity of his old company. This means that
16
Ceren Ozgen, et al, “Immigration and Innovation in European Regions,” IZA Discussion Paper No.
5676, 2011. Prof. Zimmermann commented: “Distinct composition of immigrants from different
backgrounds are a more important driving force for innovation than the sheer size of the immigrant
population in a certain locality.”
17
Ulrich Kaiser, et al, “Labor Mobility, Social Network Effects, and Innovative Activity,” IZA
Discussion Paper No. 5654, 2011. Prof. Zimmermann commented: “Labor mobility between firms is
associated with an increase in total innovative activity of both the old and new employer”; “Social
network effects are the channel for this mechanism.”
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PROCEEDINGS 81
there is interchange that helps improve the information flow between people
who have left and those left behind. So there’s an increase in innovative activity
for both companies.”
The Human Resource Challenge
Dr. Zimmermann turned to the “human resource challenge,” and the “need
for good people.” Demographic trends indicate that there will be an “enormous
shortage” of high-skilled workers around the world. This is already apparent
today, he said, and will become “more dramatic.” It is not only a problem for
Germans and Americans, but also for the Chinese. He added the following
details:
• High-skilled workers are the driving force of innovation.
• The competition for high-skilled workers is global.
• High-skilled workers are mostly university graduates.
• Therefore, higher education policies and human capital strategies are
crucial.
• A likely scenario is that in 20 to 30 years, the United States will still be
the dominant global force for innovation, along with China, while the
rest of the world lags.
He noted that the brightest people in the world still want to study in the
United States, and to earn a doctoral degree there. “And of course the very best
stay in the country. The less well qualified go home and build up a network with
the United States.” Europe, on the other hand, “has never wanted to be part of
this game, and I think this has to be rethought.” This, he said, requires the
reformation of German and European universities.18
Dr. Zimmermann showed a graph comparing enrollment in higher
education in the US, China, and Germany in 2005. It showed that China was
already ahead in absolute numbers, but behind both the United States and
Germany in enrolled students as a percentage of their age group. He noted that
China’s government has “strong ambitions” to increase enrollments.
18
He recommended a recent book by Jo Ritzen, A Chance for European Universities: Or: Avoiding
the Looming University Crisis in Europe, Amsterdam University Press, February 2011. Ritzen,
former rector of Maastricht University, is now a colleague of Dr. Zimmermann at IZA. Previously he
served as Minister of Education, Culture, and Science of the Netherlands, as well as vice-president
of the World Bank in the Development Economics Department. His book has been published in
German as Eine Chance für Europaische Universitaten, by Königshausen & Neumann, June 2011.
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82 MEETING GLOBAL CHALLENGES
China is already ahead in absolute numbers, but there is still substantial scope in
relative enrollment rates when compared to the US and Germany
100 25,000,000
Share in Age Group
90
(Left Axis)
Share in Age Group (Percent)
80 20,000,000
Number of Students
(Right Axis)
70
Number of Students
60 15,000,000
50
40 10,000,000
30
20 5,000,000
10
0 0
United States China Germany
Sources: OECD; Brandenburg and Zhu (2007). Age Group in China: 18 to 22 years; Age group in the US and Germany: 20 to 24 year
FIGURE 01 Enrollment in Higher Education (2005).
SOURCE: Klauss F. Zimmerman, Presentation at the May 25-26, 2011,
National Academies Symposium on “Meeting Global Challenges: German-U.S.
Innovation Policy.”
European Economists Have Gained in Importance
Dr. Zimmermann then made the “controversial” point that the success
of universities depends on the success of university education, which in turn
depends on the quality of their research—more than the quality of their students.
“Some people do not like that conclusion,” he said, “but that’s how it is and
should be. It is good news if we want to attract the best students and generate
knowledge and then translate that knowledge into innovation.” He said that
when he began his own post-graduate education three decades earlier, Germany
was far behind. “Europe was empty. Economics research was dominated by the
West. Since then, there has been a big change, and European economists have
gained in importance.” As measured by its share of articles in economics
journals, Europe between 1991 and 2006 had risen from about a quarter to about
a third, while North America’s share shrank from about 2/3 to less than half.
Asia’s share doubled, from a low base. “This is likely related to the Bologna
process that facilitates the internationalization of research and teaching.” He said
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PROCEEDINGS 83
that except for the 10 best universities in the West, European researchers publish
more papers per university.19 In addition, he said there was a three-fold
increased in the number of publications by German economic research institutes
in SSCI-listed journals between 2000/01 and 2005/06.20 In addition, he said, the
number of articles published by DIW Berlin in SSCI-listed journals rose from 59
in 2008 to 78 in 2009; less than 10 were published in 2000.21
In short, he said, the process of catching up is still incomplete, with the
per-capita number of publications in economics journals in Germany still
substantially lower than in the United States. But the gap has closed since the
early 1990s, he said, with international cooperation in Europe and across the
Atlantic identified as an important factor.22
China’s Push for Strength in S&E
Dr. Zimmermann widened his comparison to include a broader picture
of science and engineering. Between 1988 and 2008, the number of S&E journal
articles by European authors had risen from 146 to 233, while the number by
U.S. authors rose less, from 170 to 199. The increase in Asia was far more
dramatic, however, rising by a factor of 12, from five to 61, primarily because of
the increase from China.23
China is pushing hard to increase its strengths in science and
engineering, he said, including remarkable programs to invest money and apply
development strategies to recruit the best people. “I have met with people who
are organizing this for China,” he said, “and they have a very public plan to be
the world’s scientific leaders by the year 2050.” Among the milestones since the
opening reforms of 1978, he said, were the following:
• Dramatic increase in the number of students enrolled in Chinese higher
educational institutions (reaching 20 million in 2008).
• An increasing trend of Chinese students studying abroad (1.4 million in
2008).
• Tremendous scholarly output by China, with clear priority in natural
sciences (59 percent of the articles overall).
19
The Economist, February 17, 2011.
20
Rolf Ketzler and Klaus F. Zimmermann, “Publications: German Economic Research Institutes on
Track,” Scientometrics, 80(1):233-254, 2009.
21
Annual reports of German economic research institutes, Zimmermann calculations.
22
Ana Rute Cardoso, Paulo Guimaraes, and Klaus Zimmermann, “Trends in Economic Research: An
International Perspective,” Kyklos, 63(4):479-494, 2010.
23
National Science Board, Science and Engineering Indicators 2010, Arlington, VA: National
Science Foundation, 2010; Amelie F. Constant, Bienvenue N. Tien, Klaus F. Zimmermann, and
Jingzhou Meng, “China’s Latent Human Capital Investment: Achieving Milestones and Competing
for the Top,” IZA Discussion Paper 5650, 2011.
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84 MEETING GLOBAL CHALLENGES
4
Na onal Science Board (2010): “the gap in
China’s R&D/GDP ra o rela ve to those of
3.5
3.4
3.5 developed economies suggests that China’s
R&D volume can con nue to grow rapidly”
3 2.8
2.7
2.6
2.5
Percent of GDP
2.5
1996
2 1.8 1.8
2007
1.5
1.5
1
0.6
0.5
0
South Korea Japan United States EU-27 China
Source: Constant, Tien, Zimmerman, and Meng (2011, IZA DP 5650);
Based on Na onal Science Founda on: Science and Engineering Indicators 2010
FIGURE 2 China on the fast track…and there still is scope for improvement.
SOURCE: Klauss F. Zimmerman, Presentation at the May 25-26, 2011,
National Academies Symposium on “Meeting Global Challenges: German-U.S.
Innovation Policy.”
• More International students studying in China (almost 200,000 in
2007).
Dr. Zimmermann concluded by emphasizing the importance of the
“global tug-of-war” for talent, and reiterated that “whoever wins the battle will
be the victor in the 21st century.” He closed by reporting part of a conversation
between Richard Freeman, a noted labor economist at Harvard, and a Harvard
physicist who works closely with overseas scientists and engineers. Prof.
Freeman said to the physicist, “Ah, so you are helping them catch up with us?”
The physicist answered, “No, they are helping us keep ahead of them!”
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PROCEEDINGS 85
A MICROSOFT PERSPECTIVE ON THE UNITED STATES AND
EUROPE
Jan Muehlfeit
Chairman Europe
Microsoft Corporation
Dr. Muehlfeit introduced himself as a software engineer by profession,
but “always interested in the relationship between technology and human
beings.” When he was born, he said, the price of a transistor was one dollar;
today a dollar will buy one billion transistors. “This is driven by Moore’s Law,”
he said, “and that will influence everything for the next 10 to 15 years.” He said
that the CEO of Daimler Benz had told him there are 19 “full-fledged
computers” in a new car, and that Daimler’s budget for software was 60 percent
of its total budget. “Cars are in fact software products,” he said. “If you look at
all the skills around the industry, whether for a software engineer, a designer at
the top of the pyramid, or a services man at the bottom of the pyramid, the skill
set of everybody will move up because of the technology.”
The New Era of Cloud Computing
Another big change would be the advent of cloud computing, he said,
which would play as large a role in the knowledge era as electricity played in the
industrial era. “What cloud computing means is that ICT will be delivered as a
utility. That will bring huge cost savings, productivity, and innovation.” Today,
Dr. Muehlfeit said, a typical state organization may have to allocate 90 percent
of its ICT budget to maintenance costs, leaving little for innovation. “Once you
deliver software services through the Internet as a utility, you move your
spending model from capex to opex, and that will change everything.”
The “cost savings, productivity, and innovation” of the cloud were
critical for Europe, he continued, because of three challenges shared with the
United States. The first is debt; the second is demography, with both regions
having to confront an aging population; and the third is the need to raise GNP
growth. “We need to run faster today than we ran yesterday, but we also need to
run faster than the others. While in Europe run fast in some ways, we lag behind
in growth.”
Another challenge, Dr. Muehlfeit said, is to revitalize education.
Technology itself would not be a sufficient advantage, because it spreads so
quickly around the world that it becomes a commodity. “We will mainly
compete as human beings and organizations,” he said, “but also as countries
through our ability to unlock human potential.” This can be done only by
“improving education at one end and lifelong learning at the other. We need to
introduce a startup mentality.” He reviewed the case of Korea and Ghana. In
1950, the GDP per capita was about the same in both countries, whereas today
Korea has soared far ahead. “It’s very different because in Korea, education
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86 MEETING GLOBAL CHALLENGES
became the mantra for the country. “Would you buy a Korean TV 15 years
ago?” he asked. “Probably not. Today I buy a Samsung instead of a Sony. That’s
what education can do.”
Today, he said, education in the EU and the United States were lagging.
“There is an old saying: if you tell them, they will forget; if you show them, they
will remember; if you involve them, they will understand. We need to change
education in that way.” He said that he chaired the European section of the
World Economic Forum on Education, and was very interested in the results of
PISA, which measures 15- and 16-year-old students’ skills in mathematics,
science, and reading. “The results show you pretty much what you will get in the
economy and innovation 7 to 10 years later,” he said. New champions were
emerging. Usually PISA is won by the Finns, he said, because their educational
system is so good, or by the Koreans. Last year, however, “students from
Shanghai beat both groups by thirty points in every category. That is equivalent
to about one year’s advantage in reading, mathematics and science.”
Not only STEM skills, but also ‘Soft’ Skills
The development of new skills in mathematics, science, and logic
would be needed to drive an innovation economy, but not sufficient. The best
computers today are beating the best chess players. “That’s why I say we need
STEM-plus—STEM plus soft skills, self-awareness, creativity, innovation.” He
returned to the example of Finland, which established two years ago an “Auto
University,” or Innovation University, where students study not only technology
and economics, but also art. “This is a broad concept, and they’ve got excellent
results. They are trying to recreate a startup mentality.”
Dr. Muehlfeit concluded by underlining the need for better life-long
learning programs. He described some joint research between Microsoft and the
International Data Corporation; one conclusion was that in five years, 90 percent
of all jobs will require at least basic electronic skills. Today, he said, 40 percent
of the European population still lacks e-skills. “We need to continue lifelong
learning. I’ll illustrate what is wrong. When kids are in kindergarten in Europe,
90 percent of them would like to be innovators and entrepreneurs, would like to
do something out of the comfort zone. By the time they leave university, only 17
percent feel that way, and only 4 percent will actually do it. That’s because the
old system, which is based on logic and memorizing, is not unlocking human
potential.
“Imagine a system where through technology you will be able to learn
in your own individual style. Today the base of the educational system is
grounded in the industrial era, when we decided the factory is a good model for
education. The factory is a place where everyone is told what to do.”
Dr. Muehlfeit ended by challenging his audience to unlock the
creativity and innovation of students and adults alike. “Now we know that
everybody learns in their own way, and that’s what technology through e-
learning can deliver. Research by Gallup says that 80 percent of all job holders
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PROCEEDINGS 87
are just doing their work for the money—not because they like it. Imagine being
able to unlock those human talents and strengths. In my view that’s what we
need to do. In Europe we spend a lot of time discussing universities, but I think
we need to reform the whole educational outlook, beginning with primary and
secondary grades, in the same way.”
DISCUSSION
Dr. Wessner asked whether the panelists through that Germany would
succeed in attracting more students and professors from abroad.
Dr. Muehlfeit agreed that Germany should think harder about “smart”
immigration to attract European professors back. He cited Canada, where more
than 40 percent of people have a university degree, as an example of a country
doing an excellent job of smart immigration, and rising higher in innovation
indexes. In EU universities, he said, only 2.6 percent of students were non-
European students. “The mix of cultures and the drive for innovation are
missing here—while more than 50 percent of students in the United States are
non-Europeans.” Another data point he offered was that 80 percent of all
software startups in Silicon Valley during the last 10 years were led by first- or
second-generation Chinese or Indians.
Dr. Zimmermann returned to the topic of immigration policies, saying
that in principal, anyone in the world with a university degree and a job offer
could come to Germany to work. But he acknowledged that this situation might
not be widely known, or believed. Whatever the reason, he said, “nobody is
doing it; a few hundred are coming worldwide. So Germany has the standing of
a fortress, a country that does not want to attract high-skilled labor.” Only
people with lower skills come for work. To attract the others, he said, a
perceptual problem must be overcome. “Really, there’s nothing to fear from
high-skilled migrants, because they only increase efficiency and create
innovations; they are also good for equality. It’s proven that the more high-
skilled people come into the country, the more equal the society will become.”
As a useful goal, he advocated a special passport for high-skilled migrants, and
welcoming them. “We should leave it to the people themselves to decide where
to work, and not to governments.”
Dr. Collier, the moderator, noted that competition for skill scientists,
innovators, and educators might look very different in coming years. At the
beginning of the 20th century, he pointed out, when someone said typewriter,
they were probably talking about a job description—a human who typed. Irving
Fisher, at beginning of his book, On the Making of Index Numbers, thanked his
computer, and then named the man who was his computer. “Educator and
innovator still have human faces,” he said, “but as we heard in the case of e-
learning, ‘educator’ might soon become an electronic machine. Perhaps the
innovator will still have a human face.”
