Beware the EU periphery's brainless recovery

As growth in the eurozone remains subdued and unemployment stabilises at high levels, spending cuts in R&D might leave some countries exposed to human capital flight.

Bruegel

Over the past decade, as part of a broader globalisation trend, migration has been intensifying at global level. The number of migrants (aged 15 ) in OECD countries increased by 38 per cent between 2000 and 2010, to 106 million (see Arslan et al., 2014). Of these, about 35 million had tertiary education. However, some countries were more successful at attracting and retaining highly-educated workers than other. Although far from perfect, this measure can give us a sense of whether a country is on balance a brain gainer.

Building on the Database of Immigrants in OECD countries (DIOC), released a few weeks ago, Figure 1 details the net flow (immigrants minus emigrants) of highly-educated workers for selected OECD countries in 2010, normalised by population. Several interesting trends can be identified: (i) small countries at the heart of Europe (Switzerland, Luxembourg) had a particularly positive balance; (ii) within Europe, among the large countries, the UK was a top brain gainer; (iii) Ireland and Finland, in 2010, were seeing a larger outflow than inflow of highly-educated individuals.  

Data on migration by educational attainment level is currently available only up to 2010. Although in normal times this would not be a major problem, given that migration patterns tend to be relatively stable in time, at the current juncture 2010 sounds like a remote past. As suggested by Machado and Walsh (2014), the euro area crisis, with its disruptive effects on the labour market and growth rates in several countries, is likely to have acted as a structural change also in terms of migration patterns of the highly educated.

As now countries progressively return to growth, it will be interesting to observe whether these changes in migration patterns will prove temporary in nature or more permanent.

In certain European countries, my hunch is they will not. Veugelers (2014) shows how fiscal consolidation has led countries that were already ‘innovation laggards’ within the EU to cut disproportionately their Research and Innovation (R&I) expenditure with respect to other categories of public expenditure. Lower private and public spending on research is likely to have a significant impact on the capacity of countries to attract and retain talents in the longer term. With no pretence to trace a direct causality link, Figures 2 and 3 (below) illustrate the strong correlation between highly-skilled migration flows and R&D expenditure (both public and private).

What the charts illustrate is that low spending on R&D is correlated both with a weaker pull factor (capacity to attract talents) and a stronger push factor (retaining talents). Survey evidence [1] on the mobility determinants of researchers somewhat points in a similar direction: career progression, research funding, facilities, and equipment (all of which are likely to be highly associated with R&D spending) appear among the top reasons for moving both to another EU country and outside the EU.

A country that gives a high priority to R&D is one that is likely to generate growth in innovative sectors over the medium to long term. This is true for both the public sector (within universities’ fields of research) and the private sector (in innovative business sectors). In turn, an economy where growth originates from innovative sectors is well placed to attract talents from abroad or create jobs for the highly-qualified individuals it has trained. 

As such, one can envision that countries in the EU periphery where R&D spending has been slashed will see a higher incidence of brain drain in the years to come. Veugelers suggests these to be Ireland, Spain, Italy, and Greece.

Interestingly, Veugelers shows how also the UK saw its R&I spending slashed over the period 2007-2012. This, coupled with the potential for tougher migration laws, could harm the country’s position as a leading brain gainer in Europe going forward.

The impact of R&D on innovation, migration patterns, research facilities, and high-skilled wages is likely to manifest only over long periods of time. As such, our analysis traces the likely scenario for these European countries only in the case in which the cuts to R&D spending are not reversed: something that would be advisable, as fiscal space materialises.

Research assistance by Alvaro Leandro is gratefully acknowledged.

This blog post presents some of the broader findings of a chapter written for ‘The Handbook of Global Science, Technology, and Innovation’ (Archibugi D. and Filippetti A. eds.). The Handbooks of Global Policy series, Wiley-Blackwell, forthcoming 2015.

This piece first appeared on Bruegel. Reproduced with permission.