CentrePieceISSN 1362-3761 The Magazine of The Centre for Economic Performance Volume 12 Issue 2 Autumn 2007 UNIVERSITY ECONOMICS ■ Incentives for invention and technology transfer ■ The booming labour market for graduates ■ Reforming higher education in Europe

ALSO IN THIS ISSUE: Mobile phones Management practices Britain’s trade unions Monetary policy-making Australia’s economy CentrePiece

CentrePiece is the magazine of the CEP director, John Van Reenen Centre for Economic Performance at the CEP research director, Stephen Machin London School of Economics. Articles in this issue reflect the opinions of the authors, not Editor, Romesh Vaitilingam of the Centre. Requests for permission to Design, Raphael Whittle reproduce the articles should be sent to the Editor Print, Ghyllprint Ltd at the address below. Cover image, Ron Achin Editorial and Subscriptions Office Centre for Economic Performance © Centre for Economic Performance 2007 London School of Economics Volume 12 Issue 2 Houghton Street (ISSN 1362-3761) All rights reserved. London WC2A 2AE

Annual subscriptions for one year (3 issues): Individuals £13.00 Students £8.00 Organisations (UK and Europe) £30.00 Rest of world £39.00 Visa and Mastercard accepted Cheques payable to London School of Economics Editorial What contribution do universities make Knowledge transfer has been central to the policies, such as changes in competition to innovation, productivity and long-run work of the Centre for Economic policy stimulated by Stephen Nickell’s economic growth? At the core of Performance (CEP) since its inception – work in the mid-1990s. One recent their activities are two ‘products’: though the long track record of CEP example is a study of regulation of scientific research and graduates. And influence is more evident in the world of Europe’s mobile phone industry described in as is made clear in the government- public policy. Stephen Nickell’s account here this CentrePiece. commissioned review of the UK's science of his time on the Bank of England’s and innovation system, led by Lord Sainsbury Monetary Policy Committee demonstrates Research reported in the previous issue and published in early October alongside this wider social impact of economic examines the European Commission’s the comprehensive spending review, research, in terms of the transfer of both recently concluded case against Microsoft. both of these outputs are essential for people and ideas. The court ruling that the software giant sustaining and improving the nation’s had abused its monopoly power – and the economic performance. Perhaps less well known is the Centre’s careful use of economic arguments in involvement in knowledge transfer to the support of this view – is an example of the This issue of CentrePiece explores some of private sector. Business-supported research effects that the output of universities can the central policy concerns facing institutions initiatives include the Manpower Human have on innovation, particularly in the high- of higher education and their political Resources Laboratory and a programme on tech industries that the Sainsbury review is masters. Nick Butler makes the case for new technology and productivity sponsored keen to promote. universities to have greater independence by EDS. And last year, CEP collaborated and resources. Stephen Machin and Sandra with McKinsey & Company on a second As always, your feedback on CentrePiece McNally note shortages of graduates in key survey of management practices covering is welcome. And do pass the magazine subjects, notably science, engineering and thousands of firms in Europe, Asia and the onto colleagues – whether they’re in a technology. And Mark Schankerman raises United States, the first results of which are university or making use of the core questions about the institutional framework summarised here. products of universities. for scientific endeavour and the commercialisation of new inventions CEP’s research on and with the private Romesh Vaitilingam through licensing to the private sector – sector tends to have a long-run focus Editor so-called ‘knowledge transfer’. through the generation of ideas and new [email protected] CentrePiece Autumn 2007

page 6 Higher education and the labour page 18 market Ozonomics

Contents in brief...

page 2 page 10 Harnessing success: incentives for invention and Europe’s universities – technology transfer in universities time for reform Mark Schankerman investigates the motivations for producing new, Nick Butler outlines what must be done to commercially valuable, scientific knowledge improve the quality of higher education in the European Union page 6 Higher education and the labour market page 18 There are no problems of graduate over-supply or over-qualification, Ozonomics according to Stephen Machin and Sandra McNally Andrew Charlton explores the myth of Australia's economic superheroes page 12 What drives good management around the world? page 20 CEP’s global survey of over 4,000 firms reveals huge variations in the Union blues quality of management practices Alex Bryson and Paul Willman chart the continuing decline of Britain’s trade unions page 22 Life on the Monetary Policy Committee Stephen Nickell reflects on his experiences setting the nation’s official interest rate

page 25 Regulating the mobile phone industry: beware the ‘waterbed’ effect Christos Genakos and Tommaso Valletti examine the impact of recent price cap regulation

1 CentrePiece Autumn 2007 Harnessing success: incentives for invention and technology transfer in universities

Universities are a key source of the new scientific knowledge that drives long-run economic growth. But what are the incentives for scientists to generate commercially valuable inventions and for university managers to license such technologies to the private sector? Research by Mark Schankerman and colleagues investigates.

erhaps the greatest long- European and Asian universities are less term productivity advances involved in this form of technology transfer come through but are rapidly expanding their activities. breakthroughs in basic The rapid growth of technology knowledge – and a transfer in the United States is in part due Psubstantial proportion of the research and to the Bayh-Dole Act of 1980. This piece of development (R&D) that creates new legislation not only gave universities the knowledge and leads to increased right to patent new discoveries but also productivity is done in universities. mandated them to license inventions made University research not only raises the with federally sponsored research to the productivity of private sector R&D (through private sector. Now, nearly all US research ‘knowledge spillovers’) and encourages universities have a technology licensing more of it to be done; it also leads to office and explicit intellectual property inventions that can be commercialised, policies and royalty-sharing arrangements either through licensing to private firms or for their scientists. via the formation of new start-up companies. Analysing technology Such ‘technology transfer’ by transfer universities has grown dramatically in the In essence, technology transfer involves past two decades, particularly in the United two distinct activities: innovation by States. Between 1991 and 2004, the university scientists and commercialisation number of US university patent by the university’s technology licensing applications rose from 1,584 to 10,517, office (see Figure 1). In the first stage, and licensing income increased from $218 scientists produce both publications and million to $1.4 billion (which is 6% of inventions. The mix of these two may be federal R&D financing for universities). influenced by the incentive of money, Image: Ron Achin

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either for themselves directly or as the role of incentives and other Our central finding is that incentives enhanced funding for their research institutional features that can make the are effective: universities that give greater laboratories. Other incentives – such as process of technology transfer more royalty incentives do much better in terms promotion and tenure rules, and intrinsic effective. Given the importance of of licensing income from technology motivation to do basic and applied research for long-term growth, it is critical transfer. This works both by inducing research – are also likely to play a role. to understand what drives scientific greater effort by researchers and through The second stage is the endeavour and technology licensing ‘sorting’ of the most productive and commercialisation of inventions by the activity. entrepreneurial scientists into high-royalty technology licensing office, which decides Is research a purely intellectual pursuit universities. We also find that royalty whether to patent and license inventions, driven by intrinsic motivation, or do incentives have a much larger impact in identifies licensees and structures economic incentives play a role in the way private universities than in public ones, contracts. The effectiveness of the that scientists structure their work? What and technology licensing activity is more technology licensing office is likely to be are the most appropriate incentives for commercially effective in the former. influenced by the university's objectives, managers in technology licensing offices? In the United States, universities government constraints on licensing and And how is technology transfer usually claim exclusive ownership (‘control incentives given to its managers. performance influenced by whether a rights’) over inventions made by their Our research programme is studying university is private or public (and hence scientists. But the cash flow rights from constrained by government objectives) and licensing inventions are typically shared the degree to which it chooses, or is between the inventor and various parts of obliged, to promote local and regional the university according to specified Scientists are development? Our research programme royalty-sharing schedules. There is explores all of these questions. substantial variation in these arrangements motivated by across US research universities, which Royalty incentives for makes it possible to estimate their effect both love scientists on inventive output. In a study with Saul Lach, I use US data (as Our study focuses on two outcomes – of research similar data are not yet available in licensing income and the number of Europe) to examine how the share of inventions disclosed by faculty scientists to and potential licensing royalties from university technology licensing offices – using data inventions received by academic inventors from the Association of University monetary (their ‘cash flow rights’) affects the Technology Managers, combined with number and licensing value of inventions information on the distribution of royalty rewards in universities. shares for 102 US universities during the period 1991-99. The novel aspect of the data is the information on the distribution of licensing income between the university and the inventor(s). The inventor retains a given percentage of net licensing income and Figure 1: University-private sector science links the rest is allocated to the inventor's laboratory, department and college and to the university. Our criterion for identifying the inventor’s share is that the inventor Venture must gain either cash flow rights or must capital have direct control rights over the income ‘Knowledge spillovers’ (for example, lab research money). In about half the universities, these royalty shares vary with the level of licensing income generated by an invention (‘non-linear royalty schedules’). The ‘Market for technology’ University average inventor's share is 41% among University technology Licensed inventions the 58 universities using linear royalty scientists licensing schedules, but there is substantial variation: office Start-up companies the minimum inventor royalty share is 25% and the maximum 65%. The royalty shares in the 44 universities with non-linear schedules display even larger variability: the average royalty share is 51%, but the Corporate research funding minimum is 20% and the maximum 97%.

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Another striking feature is that in most productive and entrepreneurial regional development, the latter goal every university, inventor royalty shares are scientists tend to work in higher royalty being more prominent in public either constant or decline with the level of universities. universities. Institutions that view local licensing income per invention. On ■ The response to incentives is much economic development as one of their average, they start at 54% and decline to larger in private universities than in primary functions might perform 30% for inventions generating over public ones. If universities do not expect differently from those that exclusively $1 million. Royalty shares are also a strategic reaction from their pursue income maximisation. unrelated to various characteristics of the competitors, the research indicates that Public universities are also more universities, such as faculty size, academic in most private universities, and in about affected by the imposition by state quality and the number of technology half the public ones, the incentive effect governments of a variety of constraints – licensing office professionals per faculty. is strong enough to produce a ‘Laffer both statutory restrictions and informal Among the more detailed findings of effect’, where raising the inventor's political pressure – on their licensing our research: royalty share actually increases the activity. Our study quantifies the impact of license revenue retained by the university incentives and measures the implicit cost ■ Academic research and inventive activity (net of payments to inventors). of these constraints and of concentrating in universities respond to variations in ■ But when universities expect competing on local development objectives by inventors' royalty shares. Controlling for universities to match changes in their estimating forgone licensing income. a variety of factors – including university royalty share, the benefits to the We find that technology licensing size, quality and R&D funding – universities of raising inventors’ royalty offices in private universities are much universities with higher royalty shares shares will be smaller. Thus, high- more likely to adopt incentive pay for generate higher levels of licensing powered, invention-based incentives are their staff than those in public income. This finding is important important, but so too is the strategic institutions. But ownership does not because it implies that the design of behaviour among universities in setting affect the licensing performance of the intellectual property rights and other these incentives. technology licensing office once the use forms of incentives in academic ■ Technology licensing offices are more of incentive pay is controlled for. From a institutions can have real effects. productive in private universities, policy perspective, this means that it ■ Inventors respond both to cash royalty suggesting that private institutions have might be possible to get ‘private share and to royalties used to support more effective, commercially-oriented performance’ from public institutions if their research labs (when the scientists technology transfer activity. the right incentives are introduced. have direct control over their use). Thus, These incentives certainly matter: we both high-powered monetary incentives Incentives for technology find that technology transfer performance and intrinsic motivation seem to play a licensing offices is strongly influenced by whether a role. This is relevant to the design of Why might university ownership affect technology licensing office uses university royalty-sharing arrangements. technology transfer performance? In a performance-based pay for their staff. For example, non-science faculty may study with Sharon Belenzon, I combine We also find that technology transfer view generous payments to support evidence from surveys of US universities’ performance is affected by the extent to research labs as less objectionable than technology licensing offices with panel which there is a preference for developing direct cash payments to the scientists. data on licensing performance to address licensing activity locally rather than more ■ The incentive effects of royalty-sharing this question. widely, and by formal and informal work both by inducing greater effort by Whereas previous research has shown constraints imposed by government. scientists and through sorting of that technology transfer performance is Universities with a stronger local scientists across universities so that the influenced by university characteristics and development focus earn far less licensing other factors, including university income from a given pool of inventions. ownership (public versus private), This raises important policy questions The incentive academic quality, local (high-tech) demand about the right balance between income conditions and licensing contract design, maximisation and local development focus effect of our study focuses more on the `black box' in technology licensing activity. of productivity within the technology Among the more detailed findings of royalty- licensing office. We examine three key our research: determinants of technology licensing sharing for productivity – performance pay; local ■ Compared with technology licensing development objectives; and government offices in public universities, those in scientists is constraints on licensing activity – private universities are significantly more combining new survey data with panel likely to use performance-based pay. much larger data from public sources on 86 US Among the private universities surveyed, universities for the period 1995-99. 79% use some form of incentive pay as in private The survey data show that universities’ compared with only half of the public two main objectives are generating universities. universities licensing income and promoting local and ■ Performance pay has strong incentive

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of ‘open science’ and the potential redirection of research away from fundamental science. While there is only limited evidence of such costs thus far, continuing vigilance is needed to ensure that they do not get out of hand. Important challenges for research and policy remain: ■ How should the ‘market for technology licensing’ best be structured, and what role, if any, should government have in Universities with a stronger that process? local development focus earn ■ Should universities have monopoly much less licensing income control over the inventions of their scientists, as they currently do, or effects. Universities that use bonus pay new economic geography literature should the scientists be free to market generate, on average, about 30-40% emphasises that growth can be stimulated their inventions through other more income per license, after by agglomeration effects working through channels? controlling for other factors. various supply and demand linkages. ■ Should the use of market-based patent ■ While private ownership has a large, But by showing that there is an and licensing intermediaries be allowed positive effect on the adoption of opportunity cost of promoting local (while preserving the sharing of cash incentive pay, ownership has no development in this way, our research flow rights between the scientist and independent effect on licensing highlights the importance of comparing the university)? performance, once we have controlled this approach with an alternative policy of ■ How much geographic specialisation for whether the university has adopted maximising income from university should there be (for example, should incentive pay. inventions (with no preference for local universities join into regional technology ■ Private universities are much less development) and using the additional transfer offices, as in some countries constrained in their freedom of license income generated to finance local like Germany?) and should such offices operation by state laws and regulations, economic development in other ways – for specialise in particular scientific and are more likely to be focused on example, through lower business taxes or disciplines? generating licensing income compared direct subsidy programmes. ■ In short, how should the market in with more ‘social’ objectives such as technology transfer be structured to promoting local and regional Conclusions exploit most effectively the economies development. Many countries, in Europe and beyond, of scale and informational advantages ■ Local and regional development are increasingly concerned about how to in these activities? objectives are ‘costly' in terms of promote more effective technology forgone license income. Universities transfer and other forms of research with strong objectives of this kind collaboration between universities (and generate, on average, about 30% less other public research organisations) and This article draws on research reported in income per license, after controlling for the private sector. Clear ownership rights, ‘Incentives and Invention in Universities’ other factors. State government incentives and a clear definition of the by Saul Lach and Mark Schankerman, constraints also reduce license income. objectives of technology transfer are key CEP Discussion Paper No. 729 elements of that process. (http://cep.lse.ac.uk/pubs/download/ The finding that local development Our research makes a contribution to dp0729.pdf) and ‘The Impact of Private objectives are costly in terms of the that public debate by showing that the Ownership, Incentives and Local forgone license income raises an benefits to universities are strongly Development Objectives on University important policy question. There are two affected by how incentives are set and by Technology Transfer Performance’ by Sharon economic arguments for having a identifying characteristics of technology Belenzon and Mark Schankerman, CEP preference for local licensing. First, pure licensing offices that influence the Discussion Paper No. 779 (http://cep.lse.ac.uk/ knowledge spillovers have a tendency to effectiveness of royalty incentives. pubs/download/dp0779.pdf). be geographically localised. Second, the One caveat applies to all this work. Our findings contribute to the policy Mark Schankerman is professor of debate about the effectiveness of economics at LSE and director of CEP’s Royalty incentives for university licensing activity, but they are research programme on productivity and scientists need to be not a cost-benefit analysis of the innovation. Saul Lach is professor of combined with 'commercialisation' of universities. Many economics at the Hebrew University of performance incentives scholars have expressed concerns about Jerusalem. Sharon Belenzon, a CEP research within technology the potential costs of these developments, associate, is a postdoctoral research fellow at licensing offices including the threat to established norms Nuffield College, Oxford.

5 CentrePiece Autumn 2007 Higher education and the labour market CentrePiece Autumn 2007

Higher education around the world has expanded rapidly in recent years, yet graduates continue to command a wage premium in the labour market. So, as Stephen Machin and Sandra McNally show, there are no problems of ‘over-supply’ or ‘over-qualification’ – rather there are ‘shortages’ in some fields, which further expansion could alleviate.

n recent decades, there has choose from. But if, for whatever reason, return to higher education suggests that been rapid expansion of higher employers demand more graduates, then ‘under-supply’ is more of an issue and that (‘tertiary-level’) education the wage premium may not fall. continued expansion is justified. In terms across many countries. This has The wage premium depends on the of employability, in many countries, there had important and profound interaction of demand and supply. In has been some catch-up of less educated effects on labour markets and recent decades, there has been a big groups over the last decade, but graduates theI way in which employers use highly increase in both the demand for and continue to have a much higher educated labour. supply of graduates. It is the fact that probability of being in a job. These expansions have, for the most demand has outstripped supply that has part, been predicated on the assumption given rise to an increasing wage premium Mismatches and shortages that more education is good for individuals for a university degree. There is Nevertheless, it sometimes takes a long and for society as a whole, not only in much controversy about the reasons time for some (usually less well terms of economic outcomes like wages or for increasing demand for graduates, performing) graduates to find jobs after employment, but also for a wide range of but the predominant view is that ‘skill- leaving higher education and even then, social outcomes like improved health, biased technological change’ is a major some are not in jobs that appear to be reduced crime and higher well-being. contributory factor. well matched to their qualifications. At the But along with expansion of the In most countries, there has been same time, there are shortages in certain system has come a range of new continued expansion of higher education sectors: this is evident in employer surveys questions that have emerged as a in the last decade. But the wage premium and in some data analysis that shows a consequence of there being many more attached to higher education has increased negative wage premium associated with graduates. Is there now ‘over-supply’ of in most of them. The exceptions are Spain ‘skill mismatch’. graduates? Is there evidence of ‘over- and New Zealand – two countries with A body of research has attempted to qualification’ and skill mismatch? particularly large expansion of higher measure these outcomes, and the Are students studying the ‘right type’ of education in the last 10 years – and Korea, (sometimes misused) terms of ‘over- subjects? And is there a shortage where the wage premium declined education’ and ‘under-education’ have of science and technology graduates markedly between 1974 and 1990, a emerged: the former arises if an individual in particular? period of industrialisation when there was holds higher qualifications than required In a recent report, we review the massive growth in higher education. by his or her job whereas the opposite evidence on these questions. The report But even in these three countries, applies for the ‘under-educated’. But offers some conclusions about the way in there is still a positive return to higher statistics on over- and under-education are which the expansion of higher education education. Thus, it makes little sense to difficult to interpret as workers are has had important effects on economic speak of ‘over-supply’ of higher education. matched to jobs based on a range of outcomes – and draws policy implications The strong, positive and (often) increasing characteristics and not just their education for the future.

The increasing supply of graduates The labour market consequences of increasing supply can be considered within a simple demand and supply framework. Starting from a position where the Concerns about the demand for and supply of graduates are in balance, a boost in the supply of ‘over-supply’ and/or graduates should, other things being equal, lead to a reduction in the wage ‘over-qualification’ of premium because employers have a wider

Image: Kevin Lau range of similarly qualified people to graduates are misplaced

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level. What’s more, apparent mismatch the degree for individuals – for example, may be a temporary phenomenon. higher education has a ‘consumption’ The extent to which such problems are value as well as a value in the labour seen as temporary varies across studies market; and jobs have non-pecuniary and countries. But one generalisation that aspects that make them attractive to can be made is that the fact of observing individuals. Second, students may not be ‘over-qualified’ individuals in the well enough informed about the likely workforce does not mean that there is returns to subject of degree. over-supply of graduates. If there were over-supply, relative wages and The value of science degrees employment probabilities would fall to the The existence of the relatively high wage level of their closest substitutes – and this differential for science/engineering/ has not happened. technology compared with other subjects The indications are that skill mismatch illustrates the high value placed on the (or inadequate levels of skill) is more of a field by employers and indicates high problem than over-qualification. In some relative demand for graduates with countries, there is a need to improve the this field of study. This might be content and accreditation of vocational interpreted as a ‘shortage’ of science and qualifications so that they provide what technology graduates and would be employers need and are recognised to consistent with some reports of do so. ‘shortages’ that have appeared in several This is not to say that higher education countries, including Australia, Belgium, should be geared to providing highly Britain and New Zealand. specific skills that are currently needed by There are big differences between employers. Some studies suggest that countries in the proportion of graduates general education and skills are more who qualify with a degree in science and valuable because they enable workers to technology. Comparing across continents respond to shocks to the economy (for (using data from 2000), Asia has the example, those that require sectoral highest percentage of graduates with change) and advances in technology. science and technology degrees (32%), which is just above Europe (28%) and Degree subjects considerably above North America (18%), One hypothesis put forward to explain skill South America (22%) and Oceania (22%). shortages is that individuals are not Within Asia, China has a particularly choosing the right type of graduate Just because there are large share of graduates with a degree in studies (whether this education is over-qualified individuals science and technology (53%). Even general/academic or vocational). In other in the workforce does though the EU has a better performance words, the choice of higher education not mean that there is than the United States in terms of made by individuals does not correspond over-supply of graduates producing science and engineering to the needs of the labour market in terms graduates, it lags well behind the United of field of study. States in terms of the proportion of As yet, there are relatively few studies among the category of subjects with a science and technology researchers in the that estimate returns to higher education relatively high return (along with some labour market. Nevertheless, as in other by subject of degree – especially when we social science subjects and professions countries, there are claims of a ‘shortage’ are most interested in change over time. such as law and medicine) whereas in the United States, which economists One study looks at changes in returns to arts and humanities are often among have struggled to reconcile with the facts subject of degree over time in Britain, the category of subjects with a relatively (which belie this concern). Germany, France and the United States, low return. Further analysis suggests that and finds that a return to an arts degree So it may be relevant to talk of the underlying issue is that the United had the lowest relative return within graduate over-supply in relation to some States maintains an adequate supply of all countries, for two time periods (the subjects of degree. For example, there scientists and engineers only because of early 1990s and 2000) and for both men have been estimates to suggest that the the sizeable influx of foreign-born and women. wage return to an arts and humanities students and employees. This could be a In contrast, the returns to degrees in degree is zero in Britain. risk to US research if there is any science, engineering and technology are This raises the question as to why interruption of the flow of immigrant substantial (especially for men). Such people continue to pursue such scientists and engineers. findings are broadly consistent with what qualifications. There are various possible The ‘brain drain’ to the United States is found for a number of other countries – explanations: one is that wages do not is also a concern for other countries. For science/engineering/technology is often capture important aspects of the ‘value’ of example, analysis of migration flows in

8 CentrePiece Autumn 2007 and out of Europe suggests that Europe Skill mismatch – or has lost out in terms of its own potential supply of ‘domestic’ graduates and its inadequate levels ability to attract scientists and engineers of skill – is more of from other countries. The shortage of personnel in these areas is likely to have a problem than costs in terms of innovation and over-qualification consequent productivity growth.

Conclusions and policy implications While concerns about over-education are largely misplaced, there do appear to be problems with graduates not always having the skills required by employers. One response to this is to make sure that vocational courses meet the requirements of employers and to ensure that the accreditation system is appropriate. But it would be unwise to emphasise acquisition of highly specific skills at the expense of general education. This is a challenge for whole educational structures not just higher education since, in many countries, students have to make a decision between general and vocational education long before they reach the stage of entering higher education. There is also a question of the balance between employer-provided training and education provided by institutions of higher education. Employers have a role in addressing concerns about skill mismatch. And governments have an important role in improving information In many countries, there about training opportunities, setting is relatively higher appropriate legal frameworks and demand for graduates ensuring portability of skills. in science, engineering Potential policy responses to the and technology variation in returns to higher education by subject include differential fees (or bursaries) by degree subject so that young people do not pursue higher graduates are encouraged to study education. One possibility is the cost subjects for which there is high relative both in terms of fees and the demand in the labour market. There may opportunity cost (the earnings students – also be a case for the provision of better and possibly their families – must forgo information to potential students on job while in higher education). Where such The article summarises ‘Tertiary Education prospects and earnings by degree subject. constraints exist (most likely for students Systems and Labour Markets’ by Stephen More generally, given the positive from poor social backgrounds), there is a Machin and Sandra McNally, a report relationship between education and good case for bursaries. prepared for the OECD. economic growth, and the fact that Another possibility is that there is The full report is available here: returns to higher education are strongly insufficient information available to http://www.oecd.org/dataoecd/55/31/ positive, there is a good argument for potential students about the returns that 38006954.pdf continuing to expand higher education. might be gained from pursuing higher This could be achieved by public education (or returns in certain subject Stephen Machin is CEP’s research director provision of more places in higher areas). In this case again, the appropriate and director of the Centre for the Economics education. Where capacity constraints policy response would be to provide this of Education (CEE). Sandra McNally is are not the issue, then an important information at appropriate stages of an director of CEP’s research programme on matter for investigation is why more individual’s education. education and skills.

9 CentrePiece Autumn 2007 in brief... Europe’s universities – time for reform Knowledge is an increasingly critical factor in shaping economic life – but across Europe, the institutions that should be the main sources of knowledge are failing to meet the challenge. Guest contributor Nick Butler outlines what must be done to improve the quality of higher education in the European Union.

With a few honourable exceptions, the universities of Second, higher education needs to be properly funded. Europe are failing to provide the intellectual and creative The European Union (EU) countries currently invest about energy that is required to improve the continent's 1.2% of their GDP in this area. A figure nearer to 2% relatively poor economic performance. Too few of them would be required to make the EU an effective are world-class centres of research and teaching competitor with the best in the world. excellence. Many are desperately short of resources. Some are shamefully poor in every sense and can barely provide The important difference between Europe and just about what most objective observers would understand to be an every other developed economy is that private finance education of quality. plays a very modest role in its university funding. Thus, public funding for higher education represents about 1% The picture is not uniformly bleak. The UK and some of of GDP for the EU countries, roughly the same the Nordic countries have increased funding in recent proportion as in the United States. But private funding years. Countries such as Austria, Denmark and the for US universities amounts to a further 1.4% of GDP Netherlands have greatly improved the way their and the average in OECD countries is 0.8%, compared universities are run. The UK has some of the best research with only 0.1% for Europe. universities in the world, thanks in good measure to the relative autonomy of its institutions and to the way that If the quality is to be maintained and improved, and research funding is allocated – on the basis of peer- Europe’s students are to earn degrees worth the reviewed excellence as opposed to the whims of central parchment on which they are printed, European government or the need to spread limited resources governments will sooner or later have to introduce evenly across every region. tuition fees. These should be backed by strong systems of maintenance grants to ensure that access is open to But European institutions are not well placed to compete all and that students can afford to sustain three or four in what has become a global competition for talent. In years of study. countries such as France, Germany and Italy, the sector is struggling to cope with too many students, and delivering The UK has started the process and Germany is moving uninspiring teaching in dilapidated buildings. Across in the same direction. The political challenge to the Europe as a whole, higher education is crying out for status quo in France will be enormous. As many British reform in six important areas. and American universities can testify, increasing numbers of the best young French people are already voting with The first concerns control and independence. Universities their feet, seeking an international education beyond the need the autonomy necessary to manage their own affairs stultifying constraints of the ancient regime at home. in an efficient fashion. Universities that are effectively agencies of the state – as is in effect the case in France Third, European countries are going to have to become and Italy – have very little control over their resources and much more selective in the way they allocate resources. are unable to set relevant academic priorities. There are nearly 2,000 universities in the EU, most of which aspire to conduct research and offer postgraduate Throughout Europe, including the UK, there is a degrees. By contrast, fewer than 250 US universities powerful case for universities to be more independent – award postgraduate degrees and fewer than 100 are even if government remains the main purchaser of recognised as research-intensive. services – including both teaching and research. This is not about ‘privatisation’ in the sense of institutions Given this concentration of resources, it is no wonder being sold to the highest bidder. It is rather about the United States dominates the league tables of universities seeking and earning the freedom necessary to the world's best research universities. Europe needs to transform what one observer has called the last major devote its available research budget – at national nationalised industry. and EU level – on the basis of peer-reviewed

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excellence. Research funding should not be a cover for Throughout Europe, there regional policy. is a powerful case Selectivity is also important when it comes to accepting for universities to be students. World-class universities have to be free to pick more independent their own talent rather than to take what comes – as happens now in large parts of Europe. Without some test of merit and potential, universities will remain simply a device for disguising unemployment numbers, as is the case in parts of southern Europe.

The fourth area concerns the curriculum reform. This is enable universities to reach out to meet the rapidly already under way in more than 40 countries across the growing global need for education. Much of this funding continent, through what is known as the Bologna process. will come from government, but universities also need to The idea is to establish easily recognisable and comparable develop their own funding streams, and to see themselves degrees based around a two-cycle system of studies, as self-standing institutions. starting with a bachelor degree and moving on to a masters. The UK, with its own traditions, has barely Diversity will be one of the principal benefits of a break embraced the process, but change is coming and more from the nationalised past. As freestanding organisations, British universities need to engage and to experiment in universities will be able to find their own distinctive this area. capabilities.

Fifth, Europe needs to develop a much more diverse Universities may seem slow to change, but history system of higher education. Rather than attempting to suggests that over time they do reflect the needs of the make them all equal, the aim should be to create a rich societies of which they are part. Change in higher mix of institutions – some offering world-class teaching education must be part of a much wider reform of the and research, others concentrating on regional or local entire education system – providing ladders of needs. Germany recognises this challenge with its plans to opportunities; developing talents concealed by poor family fund a small group of elite institutions, as do the best of backgrounds and language difficulties; and offering the new generation of universities in the UK, which are second and third chances for men and women to revisit developing their own specialisms and breaking free of the the process of education through their lives. need to mimic Oxbridge. Universities are part of that wider process and vital to its Finally, in pursuing this agenda of excellence through success. Their development and their capacity to respond diversity, a creative mix of funding is necessary – to reward to the challenges facing Europe will be a crucial leading talent, research and teaching; to stimulate entrepreneurial indicator of the EU’s success in the fiercely competitive development; to encourage experimentation; and to environment of the twenty-first century global economy.

Nick Butler is Director of the Cambridge Europe needs a much Centre for Energy Studies. He is co-author with Richard Lambert (a member of CEP’s policy more diverse system of committee) of The Future of European Universities – Renaissance or Decay, published higher education with a by the Centre for European Reform in 2006. creative mix of funding Image: Lindsay Beyerstein

11 CentrePiece Autumn 2007 What drives good m around the world?

It has long been suspected that bad management plays a key role in explaining the UK’s productivity gap with the United States and some of our European neighbours. CEP’s global survey of over 4,000 firms suggests that there is indeed a ‘management gap’ – and reveals the forces driving variations in the quality of management practices.

he exploits of David firms in Europe, the United States and So you think Brent in the television Asia. By combining these data with firm manufacturing series The Office have accounts and industrial statistics, we are made bad British able to explore in detail the relationship is boring... management practices between management practices, the During the summer of 2006, we infamous around the economic environment and company interviewed over 4,000 managers. Some of globe.T But these failings have a far longer performance. these individuals were extremely colourful historical pedigree. The Harvard business Overall, we find compelling evidence characters, providing endless entertainment historians Alfred Chandler and David that better management practices are to the research team with their comments Landes have both claimed that poor significantly associated with higher immortalised on our team quotes board. management practices held back British productivity and other indicators of Some of our favourites included: companies. In 1947 as part of the corporate performance, including return Marshall Aid scheme to revive post-war on capital employed, sales per employee, Europe, American businessmen and sales growth and survival. This is true in engineers concluded that ‘efficient every country we look at, suggesting that management was the most significant our characterisation of good management factor in the American advantage’. practice is not culturally biased towards But how do British firms now compare ‘Anglo-Saxon’ approaches. in terms of management practices, not We estimate that management only with the United States and practices can account for up to a third of continental Europe but also with the rising the differences in productivity between industrial giants of India and China? Until firms and countries. Why are there such recently economists have had little to say startling differences in the management Talent rewards about the role of management in driving practices and productivity of competing productivity and other key performance companies? Our research offers some the Indian way indicators. This is largely because there has potential explanations for these Interviewer: been an absence of good quality data on differences and suggests areas where management practices. Working in policy can encourage the spread of good How do you identify your partnership with McKinsey & Company, management practices. star performers? CEP has been carrying out a large research project that attempts to fill this void. Measuring management Indian plant manager: We have developed an original survey practices This is India. Everyone thinks method to measure management practices Measuring management requires us to in a systematic way in more than 4,000 codify the concept of good and bad he is a star performer.

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management into a measure applicable to ■ Incentive setting: are companies hiring, The British chat-up different firms. We used an interview- developing and keeping the right Male production manager: based management practice evaluation people and providing them with tool that defines and scores from 1 (worst incentives to succeed? Your accent is really cute and practice) to 5 (best practice) across 18 of I love the way you talk. the key management practices that appear For each company in the study, to matter to industrial firms, based on researchers interviewed by telephone one Do you fancy meeting up near McKinsey’s expertise in working with or two senior plant-level managers, who the factory for some fun? thousands of companies across several knew only that they were taking part in a decades. The 18 practices fall into four ‘research’ project. These managers were Female (Australian) interviewer: broad areas: selected because they are senior enough That’s a great offer – how to have a reasonable perspective on what ■ Shopfloor operations: have companies happens in a company but not so senior could I refuse? Unfortunately, adopted both the letter and the spirit of that they might be out of touch with the I’m washing my hair every night lean manufacturing? shopfloor. The interviews relied on open ■ Performance monitoring: how well do questions and the interviewers were for the next three months. companies track what goes on inside trained to probe for details of practices on their firms? the ground. ■ Target setting: do companies set the The interviews were run by an right targets, track the right outcomes international team of 47 postgraduate and take appropriate action if the two students (mainly MBAs), who worked from don’t tally? CEP in a specially created survey centre

Figure 1: US firms are the best managed, followed by the Germans and Swedes, with the Greeks, Indians and Chinese the worst

United States Germany Sweden Japan Italy UK France Poland Portugal Greece Strong competition India China and flexible labour 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 markets both lead The bars indicate for each country the average score on the directly to improved 18 management questions (1=worst practice, 5=best practice). management performance

13 CentrePiece Autumn 2007 during the summer of 2006. This was a Multinationals tend to achieve 24-hour operation since the Chinese day starts at midnight in London, just before excellent management practices managers on the West Coast of the United wherever they are located States pack up to go home.

Management practices around the world As Figure 1 shows, there are significant differences in management performance across countries. The United States is at the top of the management league table, while Greece, India and China are the worst performers. Germany, Sweden and those who complacently assume that vastly Japan are (not surprisingly) strong superior Western management protects performers given the manufacturing focus them from offshoring. of the survey, while France, Italy and the UK are all solidly mid-table. Managers are very poor at But the United States is not entirely self-assessment dominant. US firms score particularly highly Since good management is strongly linked for people management, such as with good performance, why do so many promoting and rewarding talented workers firms fail to make a priority of improving quickly. But as Figure 2 shows, in shopfloor their practices? The techniques are pretty operations management, Sweden, France, well known yet many firms remain poorly Americans on Italy, Japan and Germany do relatively managed. geography better. To examine possible causes of this Interviewer: Overall, cross-country differences disconnect, we asked managers as a final account for only 9% of the variation in question in the interview to assess the How many production sites do management practice. Performance overall management performance of their you have abroad? differences between companies in the firm on a scale of 1 to10. To avoid false same country are far larger than any cross- modesty, they were asked to exclude their Manager in Indiana: country variation. For example, the best personal performance from the calculation. Ummmm… well… we have third of Indian companies outperform the As Figure 3 indicates, interviewees’ European average. This is worrying for answers to this question are not well one in Texas…

Figure 2: European firms are relatively better at operations management than people management

Sweden France Italy Japan Germany Portugal Greece UK United States China Poland India -0.350 -0.175 0.000 0.175 0.350

The bars indicate for each country the average score on six questions focused on operations management minus the average score on six questions focused on people management.

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Figure 3: correlated with either our management Managers are over-optimistic about their own management practice score or their own business practices across the globe performance. At the country level, we find Greek, Portuguese and Indian managers to ■ Self-assessed management score be the most over-optimistic about their ■ Our management score management practices, while the Japanese, Swedish and French managers

United States are the most pessimistic.

Germany Government policy plays an important role A variety of policy factors have an effect on Sweden companies’ adoption of good management practices. Most significant among these are Japan their competitive environment and the flexibility of the local labour market. Italy When competition (whether measured by narrow industry profit margins, trade UK openness or number of rivals) is higher, management is better. This could be a France result of two effects: first, good practice spreads quickly in highly competitive Poland environments; and second, poor practice is eliminated by Darwinian natural selection as Portugal poorer performing companies are removed from the marketplace. Greece We also find that flexible labour markets matter, since these appear to allow India companies to adopt better people management practices. In countries with China rigid employment laws (using the World Bank’s index), firms find it difficult to 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 implement effective hiring, promotion, retention and firing practices. The bars indicate for each country the average score on the 18 management The high position of the United practice questions and the average score on the self-assessed management States in the management league table is question: ‘Excluding yourself, how well managed is your firm on a scale of 1 to 10, where 1 is worst practice, 10 is best practice and 5 is average’. The scores are helped by its competitive product markets divided by 2 to put them on the same scale as our management scores. and flexible labour markets.

The difficulties of defining ownership in Europe Production manager: We’re owned by the Mafia. Interviewer: I think that’s the ‘Other’ category… although I guess I could put you down as an ‘Italian multinational’.

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Figure 4: Management scores are highest for private equity owned firms The best- managed firms ■ Management score for all firms are those with ■ Management score for firms that did not change ownership in the past three years three or more Government years of Family/founder private equity owned and CEO ownership Private individuals

Family/founder owned but with an external CEO

Dispersed shareholders

Private equity

-0.25 -0.20 -0.15 -0.10 -0.05 0.00 0.05 0.10 0.15 0.20 0.25

The bars indicate for each type of firm ownership the deviation from the country and industry average score on the 18 management practice questions. The scores are for domestic firms only, of which there are 2,385 in the sample. The red bar for each type of ownership only includes the 2,180 firms that have had the same ownership for the past three years. The number of firms for the blue/red bar are as follows: government (53/53); family/founder owned and CEO (1,185/1,082); private individuals (364/285); family/founder owned and external CEO (153/145); dispersed shareholders (624/566); and private equity (64/37).

Private equity, public gain management scores are more likely to be One particular ownership form that biased downwards by having recently appears to be linked with superior purchased badly run firms. management practices is private equity. As To investigate this we re-plotted the Figure 4 shows, private equity firms are management scores for only those firms the best managed. This superior that have had the same ownership for at performance of private equity appears to least the last three years and found that Employee be quite robust – they come out on top doing this increases the lead of private retention the old- both with and without controls for equity firms over all other firms, making fashioned way: country and industry. them the best managed in the sample. One possible explanation is that Company chairman: private equity firms only buy well- Multinationals, family Sex is a great thing! If I can get managed firms so that their high ownership and skills management scores simply reflect their Firm ownership and the availability of my employee a local girlfriend ability to cherry-pick the firms that they skilled people, both in management and he’ll never leave. buy. But the usual story of private equity among the workforce in general, are also buy-outs is the reverse: they buy badly associated with important differences managed firms with the aim of turning between the better-managed firms and them around. This suggests that their the rest. For example, multinational companies are well managed around the globe, achieving extremely good management Family owned practices in countries like Greece and India firms that appoint despite the poor management practices of local domestic firms. the eldest son as Family ownership and the traditional the CEO are practice of primogeniture – handing down the CEO position to the eldest son particularly badly – are associated with particularly bad managed management practices (see Figure 4). This appears to be an issue for Europe

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since in France, Greece, Italy, Portugal More details on this research can be found in and the UK, around 10% of the ’Management Practice and Productivity: Why manufacturing firms are family owned They Matter’ by Nick Bloom, Stephen Dorgan, with a CEO that has been chosen John Dowdy, Christos Genakos, Raffaella because they are the eldest son. The Sadun and John Van Reenen, July 2007 United States performs much better on (http://cep.lse.ac.uk/management/ this dimension, with only 2% of its firms Management_Practice_and_Productivity.pdf). being family owned with the CEO chosen The things we because he is the eldest son. did to get For full details of the survey methodology, The skills of both the managers and interviews including all the questions, see ‘Measuring non-managers in the firm also appear to French secretary: and Explaining Management Practices across play an important role. For example, Firms and Nations’ by Nick Bloom and 84% of managers in the highest scoring You want to talk to the plant John Van Reenen, CEP Discussion Paper firms are educated to degree level or manager? There are legal No. 716 (http://cep.lse.ac.uk/pubs/download/ higher, as are a quarter of the non- dp0716.pdf) and forthcoming in the management work force. Among the proceedings against him, Quarterly Journal of Economics. lowest scoring firms, by contrast, only so hurry up. 54% of managers and 5% of the wider The research was jointly funded by the workforce have degrees. Advanced Institute of Management Research, the Anglo-German Foundation, the Economic What can the and Social Research Council and the government do? Kauffman Foundation. Our research shows a significant management gap between the UK on the Nick Bloom is an assistant professor of one hand and the United States and some economics at Stanford University and a European countries on the other. This is a research associate in CEP’s productivity and situation that the government can modify innovation programme. Christos Genakos,a by encouraging the uptake of good research associate in CEP’s productivity and management practices. innovation programme, is at Cambridge Our research suggests that strong University. Raffaella Sadun is a CEP competition and flexible labour markets research economist. John Van Reenen is both lead directly to improved director of CEP. management performance. Multinational companies have a strong positive effect too, and their influence is felt throughout the countries in which they operate. In these respects, the British government has a good track record and it is in other European countries that these lessons need to be taken on board. The UK performs less well in the areas of skills and family ownership. British levels of basic education are low by international standards, and any policies that addressed this would have a big impact. As regards family ownership, there is currently a distortion in the inheritance tax system that actually promotes the continued ownership of privately held manufacturing firms in family hands, keeping these out of private equity ownership. Our research suggests that by appointing managers on the basis of primogeniture rather than competitively on the basis of merit, we are possibly promoting more bad management and productivity practices in the UK.

17 CentrePiece Autumn 2007 in brief... Ozonomics Australia’s extraordinary period of prosperity has allowed the incumbent government to position themselves as economic superheroes. But as Andrew Charlton warns in a new book, we should always adopt a sceptical attitude to any politician’s claims about their contribution to national economic success.

The most popular misconception in economics and politics unemployment rates, the low inflation, the low interest is that if the economy is humming along, the government rates and the general mood of affluence that suffused the must be doing a good job – it must be a capable world. Incumbent leaders have generally turned this economic manager and its policies must be working. prosperity into stunning electoral success.

When the economy is booming, politicians encourage the But most people are much sketchier on the following public to believe that they tightly control the economy. question: ‘Which of our leader’s policies, if any, can The idea that they hold the fortune of the nation in the actually be shown to have produced the boom for which palm of their hands appeals to them, and they want the he has received so much credit?’ This question is critical to public to take the strong economy as evidence of their the issue of whether a government’s leadership is skill and omnipotence. responsible for the prosperity it presided over – or whether that prosperity was produced by the policies of The media too are susceptible to this fiction because previous governments or the influence of benign we like to have someone to blame for our hardships international economic forces. and praise for our success – heroes and villains make good stories. In Australia, the incumbent conservative government has benefited from an extraordinary period of prosperity, one The truth, however, is that politicians have much less that makes even the recent success of the British economy control over the economy than they would have us look modest by comparison. Australia has had 16 years of believe. Certainly, there can be policy successes and continuous expansion during which its wealth has policy failures, but more often than not the condition of doubled, labour productivity increased by a half and jobs the economy is determined by factors outside the control increased by a quarter so that unemployment is at a 33- of politicians. year low of 4.3%.

The economy is much like a little boat in a wide sea. Australians have generally chosen not to think too hard Whether the trip is calm or rocky depends much more on about where this prosperity has come from. They have the weather and the wash from the bigger boats than richly rewarded Prime Minister John Howard at the ballot anything that might be done internally. If the weather is box without looking too closely at causes and effects. bad, you cannot blame the skipper for the bumpy ride. In fact, unless you know a lot about sailing, it’s hard to know But a more accurate analysis of different governments’ whether the skipper is doing a good job in bad contribution to Australia’s ‘miracle’ economy involves circumstances or whether he’s making it worse. recognising that economic policies act with a lag, so the prosperity reaped today may have been sown many The same is true of skippering the economy. If you ask years before. people about the state of their economy in the last five years of the global boom, they will remember the low In Australia the battle for the title of ‘better economic

Letting politicians take credit for a booming economy distorts the public debate about economic policy

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Economic success is a complex combination of long-term policies and global circumstances

manager’ has become one of competing narratives. Labor says its macroeconomic framework in the 1980s Howard and his finance minister Peter Costello, backlit by and microeconomic reform in the 1990s created the the conspicuous boom, have an obvious advantage over bedrock for later success and that the recession was the the Labor Party’s story, which is unflatteringly silhouetted price to be paid for progress. against the recession they presided over. In contrast, the conservatives say the Howard government’s decisions to pay down the national debt and deliver budget surpluses have directly produced the long boom. Howard has taken credit for the prosperity and used it to position himself as an economic superhero deserving of complete trust from the electorate.

Every government’s claims about the economy deserve thorough scrutiny because what we believe about the foundation of our wealth makes a great deal of difference to how we should pursue our future. If, as our leaders would have us believe, the prosperity of Britain and Australia has been due to the superior performance of our leaders, then our job as citizens is merely to continue passively to re-elect those leaders.

But if our success is a complex combination of long-term policies and global circumstances, then our challenge is to ensure we continue constant public debate with a view to finding the right policies to sustain our position in a changing world. Letting politicians take credit for a booming economy that is not of their making distorts the public debate about economic policy.

Andrew Charlton is a research economist in CEP’s globalisation programme. His new book Ozonomics: Inside the Myth of Australia’s Economic Superheroes has just been published by Random House.

19 CentrePiece Autumn 2007 in brief... Union blues The membership of Britain’s trade unions continues to decline and, despite a series of mergers, most of them face severe financial difficulties. Alex Bryson and Paul Willman examine their organisational failings and find a glimmer of hope in the handful of success stories – unions representing professional workers.

Trade unions are in the doldrums. Although the rate of Few unions like to raise membership fees. It’s generally decline in union membership has slowed since Labour viewed as impractical and unacceptable. Most unions came to power in 1997, the latest figures show that they allow their annual conferences to debate a higher fee but, continued to lose members in 2006. The reasons are clear. not surprisingly, there is rarely an appetite for it so it Unions are less able to organise new workplaces and new doesn’t happen. Yet unions elsewhere in the world have workers than they used to be. As a consequence, an adopted this approach. For example, the Health Services increasing proportion of all workers have never been Union of Australia recently decided to increase their union members, and new workplaces rarely recognise subscriptions dramatically, arguing that the quality of their unions for pay bargaining. services, including collective bargaining, requires them to be on a stable and viable financial footing. Less well known is the effect that the loss of membership is having on unions as organisations. These effects are In countries like the United States, members are used to identified for the first time in our research, which paying a much higher percentage of their wages in union measures the resources available to unions both on their fees: in return, they get the largest union wage premium own balance sheets and within establishments. in the world. Some unions in Britain are studying this issue carefully and are considering running experiments to test As Figure 1 suggests, the finances of British unions are in the sensitivity of demand for membership to the price of a parlous state. This is not particularly surprising since they joining – whether and by how much numbers might fall if rely very heavily on members’ subscriptions as their fees were higher. primary source of income. Thus, their income flows fall as membership falls unless they can increase membership Meanwhile, the chief response of unions to the fees substantially or generate income from other sources. diminishing pool of unionised labour has been to engage Moreover, expenditure has exceeded subscription income in what we call ‘market share unionism’, in which they for some time. Of course, this is not a sustainable strategy have sought to grab a greater share of the remaining in the long run and it has implications for their ability to union pie. It is this strategy that lies behind the wave of sustain assets. union mergers we’ve witnessed in Britain in recent years.

The most successful unions Figure 1: organise occupations rather than Changes in union resources 1984-2004 industries or workplaces

115 Each of the four indices is set at 100 in 1990. The Offbal (‘off- 110 balance sheet resources’) index is constructed using the 105 Workplace Employment Relations Surveys, from which a 100 workplace can be rated between 0 and 3, scoring 1 each time it 95 has one of the following: check- off; management recommenda- 90 ■ Solvency index tion of union membership or a ■ Reserves index closed shop; and an on-site union representative. The other 85 ■ Membership index three indices are derived from ■ Offbal index Certification Officer returns. 80 Solvency is the margin of total income over total expenditure. 75 Reserves are total funds divided 1984 1990 1996 2004 by expenditure.

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Unions no longer have the organisational resources to reach out to new workers and new workplaces

Between 1990 and 2005, the number of unions fell by Second, unions’ organising capability is severely damaged. over 40%. In 2007, there have been further reductions When finances are tight, unions are less likely to risk and greater membership concentration following the spending money organising in new workplaces unless merger between AMICUS and the Transport and General they can be fairly sure of success. More generally, they Workers Union. simply do not have the organisational capacity on the ground to reach out to new workers and bring them into The rationale for such mergers is analogous to the the union movement. rationale for corporate mergers and acquisitions: unions try to consolidate their resources, creating a more substantial But it would be wrong to conclude that all is doom and organisation that, at least in theory, is capable of grabbing gloom. Although the general picture looks bleak, there are a bigger share of existing members and, if they are lucky, huge differences in the finances of different unions and attracting new members through greater ‘reach’. there are some real success stories.

At the same time, the logic goes, unions can reduce their What’s more, success depends, at least in part, on the cost base by stripping out duplicate union services business models that unions are deploying. The most (offices, officials and the like). In practice, it hasn’t really successful unions, both in membership terms and worked out like this. By definition, the big unions each financially, are those representing professional workers, in have a greater share of union membership than they did particular, those representing doctors (the British Medical when they operated separately. But there is no evidence Association), nurses (the Royal College of Nurses) and that they have succeeded in expanding membership teachers (the National Union of Teachers). beyond their traditional base. These unions continue to organise occupations, rather What’s more, they have not been cutting costs so as to than industries or workplaces, because union membership take advantage of the economies of scale that mergers remains strongly linked to occupational identity. As well as offer. This is partly because, despite mergers, these representing their members in pay and conditions unions rarely operate as general unions. Instead, they negotiations, grievance procedures and the like, these continue to operate along sectoral, industrial or unions also protect their members against clients and occupational lines, often because unions recognise state interference. Other unions would do well to take that different types of members require different types note – before it’s too late. of service.

This organisational knowledge is often locked away in This article summarises ‘Accounting for Collective Action: particular sections of unions used to servicing parts of the Resource Acquisition and Mobilisation in British Unions’ unions’ membership. If unions are to reap returns to by Alex Bryson and Paul Willman, CEP Discussion Paper scale, they’ll have to work out how to share this No. 768 (http://cep.lse.ac.uk/pubs/download/dp0768.pdf) knowledge around the organisation and create efficient and forthcoming in Advances in Industrial and structures that permit them to service their members with Labor Relations. fewer staff and offices. Alex Bryson is research director at the Policy Studies What does all of this mean for unions in the future? Institute and the Manpower Research Fellow at CEP. First, it is doubtful whether unions will be able to service Paul Willman is professor in employment relations and their existing members without greater reliance on the organisational behaviour at LSE. voluntary endeavours of lay union activists and their broader membership. This is what we call their ‘off- The latest figures on union membership are balance sheet resources’. Alas, our research shows that in a 2006 DTI/ONS report by Heidi Grainger and Martin these resources are also in decline. Crowther (http://www.berr.gov.uk/files/file39006.pdf).

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Life on the Monetary Policy Committee

ne Tuesday evening in the spring of 2000, I received a phone call from Gus O’Donnell, the then permanent secretary Oat HM Treasury, suggesting that I might like to attend a small meeting at the Treasury on the following day. After some discussion, he revealed that it concerned a job but refused to be more specific. On the Wednesday morning, I went into the Treasury where he and Ed Balls asked if I wished to become a member of Stephen Nickell was the first external the Bank of England’s Monetary Policy member of the Bank of England’s Monetary Committee (MPC). On the Wednesday and Thursday, I organised leave from the LSE Policy Committee to serve two three-year for four days per week and had a chat terms. He reflects on his experiences setting with Eddie George, then the Bank’s governor. Gordon Brown announced my the nation’s official interest rate. appointment on the Friday morning.

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Such speedy appointments to public discussing the current and future of the committee has failed to elucidate bodies are relatively unusual but members prospective state of the economy and the any patterns. There is no block voting, and of the MPC have always been, and still Thursday morning making the interest rate within both internal and external groups are, appointed with great rapidity and decision, which is announced at noon. there are often divisions with deputy secrecy, much to the irritation of the These discussions form the basis of the governors voting against the governor, for House of Commons Treasury Committee. minutes that are put together by a example. Indeed the committee is not Before starting on the MPC and secretariat of four Bank staff who are concerned with consensus, split votes are having purchased a new suit, the first present throughout. These minutes are common and the governor has twice been exciting event was to appear before the discussed at length and amended by on the losing side. Note that since Treasury Committee for my confirmation the entire committee on the Monday, governors always vote last, they can hearing. This involved first, completing a eleven days after decision day and are choose whether to join the winning or lengthy ‘exam’ paper on various aspects of published, along with details of the vote, losing side except in the unusual monetary policy-making (which was set, as two days later. circumstance when they have the casting it happens, by Charlie Bean, then an One of the key features of this process vote, with the previous eight members’ adviser to the committee and a fellow LSE is the fact that the decision on interest votes tied at 4-4. professor, and from later that year the rates is taken by strict majority vote. On The style of decision-making, using Bank’s chief economist); and second, a the Thursday morning, the governor strict majority voting based on the grilling by the committee in the presence invites each member of the committee to individual views of nine independent MPC of the financial press. present their vote on rates along with members, is reinforced by the fact that When I made my appearance, I was their reasons, each member being members are held to account for their the second person on, the first having expected to talk for about ten minutes. individual votes. Formally, they are been Chris Allsopp who had been The deputy governor in charge of questioned in public by the Treasury appointed at the same time. Chris was monetary analysis (currently Rachel Lomax) Committee, where they must appear three given such a hostile reception by the is always invited to go first, the next seven or four times a year. Furthermore, committee (with Brian Sedgemore leading members are then asked in apparently individual members frequently use the charge) that by the time they got to random order and the governor always speeches, papers and interviews to justify me, the MPs were merely mildly goes last. their particular positions. aggressive, having run out of steam. Of the nine members, five are In my view, this method of decision- This proved to be the last time that internals who are permanent Bank making – that is, nine individuals coming prospective MPC members went before employees: the governor, two deputies, to their own decisions and then using the Treasury Committee for their the chief economist and the head of majority voting to aggregate them – confirmation hearings without a long markets. The other four are external generates outcomes that are superior to practice session at the Bank. members appointed in the same fashion methods based on a search for a The MPC operates on a monthly cycle, as myself. On one occasion, I was present consensus under the auspices of a essentially because, by law, it must meet at an exceptionally unusual event. The dominant leader favoured by some central to set interest rates in every calendar random order of speaking by the seven banks. month. The interest rate decision is made members between Rachel Lomax and the The desirability of having independent on the first or second Thursday of each governor just happened to be in anti- voices on the committee suggests that month. On the previous Friday morning, clockwise order around the table. If the while professional economists should have the committee meets to listen to the Bank order were truly random at each meeting, a strong representation, it is a good idea staff going through the economic news. this event would only be observed, on to have a number of members with a The following week, the committee average, once every 438 years. different point of view. This helps to spends the Wednesday afternoon Extensive study of the voting records ensure that decision-making is not

23 CentrePiece Autumn 2007

dominated by a rigid consensus entirely. Monetary policy rarely seemed to UK monetary perspective. Indeed to guard further be a cause for concern. against this, during my time the Between meals, I would visit local policy is decided committee often used to invite members workplaces, talk to the local press and by strict majority to prepare short papers focusing on give interviews on local radio. The purpose factors that might lead to decisions being of all this was partly to get a feel for the voting based seriously mistaken. state of the economy on the ground and on committee Of course, aside from the actual partly to fly the flag and explain what the procedures involved with the monthly committee was up to. members’ round of decision-making, there is a great By and large, these visits were great individual views deal of background activity. Within the fun. I got to visit places as far afield as the Bank, all the external members engage in Isle of Lewis and the Isles of Scilly, as well research and analysis, each assisted by two as less exotic places like Aberdeen, Bank researchers. This results in numerous Enniskillen, Pwllheli, Truro and Wakefield, speeches, press interviews and papers plus all the major cities of the UK. I got to prepared for consumption by academics, see the making of steel, aluminium, glass, financial journalists and the general public. brake linings, sandwiches, Smarties, An important part of the job is to Formula One cars and stair-lifts, went ensure that individual views and down the deepest mine in the UK (a committee decisions are explained to the potash mine in Cleveland), wandered world at large as clearly as possible. To around call centres, docks, farms, battery help with this, the MPC publishes a hen sheds, garden centres and shopping forecast every three months explaining its centres, and only failed to get to an oil rig view of where the UK economy is going because the health and safety procedures over the next three years. The production would have taken too long. of these forecasts involves numerous Overall, the hospitality was splendid, meetings of the committee, interacting especially in Northern Ireland. The Omagh extensively with large numbers of the Chamber of Commerce annual dinner was Bank staff. The monetary analysis division particularly memorable: arriving at 7pm of the Bank contains around 120 for pre-dinner drinks, sitting down to economists, which reveals the sheer scale dinner at 9.30pm, standing up to speak of the whole monetary policy operation. on monetary policy at around midnight, On top of this, it is part of the remit of and finally taking my leave of an event still MPC members to go on regional visits. So in full cry well after 3am. about ten times a year, I would set off for During my entire time on the some distant part of the UK both to listen committee, any time I appeared at a and to explain. These visits usually lasted public event or conference, whatever the two days and involved a great deal of subject and wherever the place, journalists eating. The basic format was to meet from the wire services were always there. large groups of business people, Their job was to obtain a quote. These trade unionists, academics and so on, characters became a part of my life – over, successively, lunch, dinner, indeed one of them followed me around, breakfast, lunch. at the Bank’s invitation, for an entire two- The idea was to give a brief talk about day regional visit to North Wales. the economic situation and then engage So I became famous in a rather in discussions, sometimes heated, about limited, ex officio sense. Then on 1 June Stephen Nickell is Warden of Nuffield how things looked from the individual 2006, I became an ex-member of the MPC College, Oxford and a longstanding perspectives of the people present. These and I have never seen any of them again. participant in CEP’s research programme were organised by the Bank’s regional It was great fun while it lasted. on labour markets. agents, who had numerous business and other contacts, and often involved the local CBI (Confederation of British Industry), Chamber of Commerce and The MPC decision-making similar organisations. method generates superior The two most popular topics under discussion concerned either the dire outcomes to methods based on a consequences of official regulation for search for a consensus under the business or what was going to happen when manufacturing industry disappeared auspices of a dominant leader

24 CentrePiece Autumn 2007

Regulators have capped the charges that mobile operators can levy on other networks for connecting calls to their subscribers. But as new research by Christos Genakos and Tommaso Valletti shows, this leads to a ‘waterbed’ effect, where prices rise elsewhere. Their analysis has implications for recent EU caps on ‘roaming charges’.

Regulating the mobile phone industry: beware the ‘waterbed’ effect he prices that mobile This problem has provided the charges to be reduced by 9% per year in operators charge other justification for regulatory intervention to real terms. network operators cut termination rates. But reducing the After a lengthy consultation and (fixed or mobile) for level of charges can potentially increase the investigation, the UK telecoms regulator connecting calls to level of prices for mobile subscribers. This (then called Oftel) concluded at the end of their subscribers – so- is what is known as the ‘waterbed’ effect, 2001 that mobile termination charges were calledT termination charges – have become where pressing down prices in one part of still substantially in excess of cost. It a hotly debated issue among regulators firms’ operations causes another set of proposed additional price controls for the and academics worldwide. The level of prices to rise. Understanding and next four years on the four major mobile these charges is perceived to be high quantifying the effect – as our research companies, Vodafone, O2, Orange and T- both in absolute terms, but also in aims to do – is critical for assessing Mobile. The companies objected and the relation to similar prices charged by fixed consumer benefits from mobile termination matter was referred to the Competition network operators. regulation. Commission. Industry analysts argue that such The Commission broadly endorsed charges may inhibit the future growth of Regulating termination Oftel’s proposals. It concluded that telecoms services. What’s more, especially charges competition in the mobile industry did not for fixed-to-mobile termination rates, a Mobile termination charges have been an constrain fixed-to-mobile termination large body of theoretical research in important issue ever since 1997 when the charges and that a price economics has demonstrated that first regulatory debate started in the UK. cap was the only remedy independently of the intensity of Price controls on the two largest operators competition for mobile customers, mobile were put into effect from 1998 to operators have an incentive to set charges 2002, requiring termination that will extract the largest possible surplus from fixed users.

25 CentrePiece Autumn 2007

likely to address these detriments that customer. Part of their revenues to consider the nature of the waterbed effectively. The Commission considered are the charges that they receive from effect when competition is not perfect. that this would yield significant benefits other networks for connecting calls to Consider the extreme case of a without an increase in average retail prices their subscribers. monopolist. Economic theory suggests that or a significant loss of retail subscribers. In When considering its pricing policy, a a firm with full market power maximises fact, it was during these investigations mobile operator will take these profits by setting the price at the point that the term waterbed was first coined by termination revenues into account. The where marginal revenue equals marginal the late Paul Geroski, chairman of the higher these revenues, the lower the total cost. In other words, the price is such that Competition Commission. price an operator would charge its the extra revenue the monopolist earns Other countries have followed the customers. It makes sense for any mobile from selling his last unit is equal to his UK’s lead. The European Commission operator to pass-through some of its extra cost of producing this unit. introduced a new regulatory framework revenue to consumers, because by Consider again the effect of an for electronic communications in 2002. lowering prices, it increases the number of increase in termination charges. Assuming Every member state of what was then the mobile subscribers, which in turn increases for simplicity that each subscriber EU-15 was obliged to conduct a market the termination revenues earned. generates the same amount of termination analysis of the mobile termination market Of course, the reverse is also true: if revenue, this would increase the revenue and, to the extent that market failures regulation reduces termination charges earned on each consumer. As a result, the were found, remedies would have to be and hence revenues, operators will have to monopolist would now charge a lower introduced. Indeed, all the countries that raise their prices to subscribers. To assess price to attract more customers, again completed the analysis did find problems how widespread this waterbed effect causing the waterbed effect. and imposed (differential) cuts to might be, we need to analyse how it can Notice that the waterbed effect would termination rates. emerge under different market scenarios. not be complete now, as the firm would In 2005, the New Zealand Commerce If the mobile market were pass-through as lower prices only part of Commission introduced similar regulation characterised by very strong (perfect) the extra revenue. Hence, even in the and while it was convinced that the competition, then operators would expect extreme scenario of a firm possessing waterbed effect is a theoretically general to make zero excess economic profits. complete market power, a reduction in phenomenon, it doubted its empirical Consider now what would happen as a termination charges is expected to cause importance. Similarly, the most recent result of an increase in termination lower marginal revenues that would termination rate proposals by Ofcom charges. This would increase the revenues increase optimal subscription prices. (Oftel’s successor organisation) associated with each new customer, hence In practice, mobile markets worldwide acknowledge the importance of the increasing their value to mobile operators. are dominated by a small number of firms. waterbed effect, but question whether the Mobile operators would start competing Competition among them is expected to effect is ‘complete’, arguing that this can by lowering their prices to acquire these be somewhere between the two extreme only be the case if the retail market is new customers. scenarios of perfect competition and sufficiently competitive. The result of competition would be a monopoly. Under these more general complete waterbed effect: any additional (oligopolistic) market conditions, the same Analysing the waterbed effect profit would be simply passed on to economic logic applies. Mobile operators compete in the consumers via lower prices, so that marketplace to win subscribers, who then economic profits remain zero. Under this provide a stream of revenues. They market structure, the introduction of The size of compete by offering attractive prices for regulation to cut fixed-to-mobile subscriptions and outbound mobile calls termination charges would affect the the waterbed and also, in the case of monthly structure of prices but not the overall effect is key to subscribers, subsidised handsets. In doing profitability of operators. so, they consider all the revenues that will While competition appears to be understanding the accrue from acquiring a customer strong in the mobile industry, both costs and benefits and all the costs of servicing regulators and market analysts agree that operators possess a significant amount of of termination market power. Hence, there is also a need charges regulation

26 CentrePiece Autumn 2007

Figure 1: Average mobile phone usage price around the introduction of Price caps on regulation of fixed-to-mobile termination charges termination charges have led 0.15 to significant price increases 0.10 for mobile phone subscribers 0.05

0.00

-0.05

-0.10 Average price paid (PPP-adjusted euros/year) per usage profile price paid (PPP-adjusted euros/year) Average T-6 T-5 T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5 T+6

Quarters around the introduction of regulation (T), so T-1 means one quarter before the introduction of regulation

The magnitude of the waterbed effect Both the timing of the introduction of because it refutes the argument that will depend on the intensity of regulated termination rates and the regulation was introduced as a result of competition as well as the shapes of the severity with which they were imposed high retail prices for making mobile calls. demand and cost functions underlying the across mobile operators in practice varied Most importantly, in line with our mobile industry. The previous two extreme widely, driven by legal and institutional waterbed prediction, the introduction of market structures provide us with the characteristics of each country. This regulation has a clear positive impact on bounds within which we expect the variability allows us to identify and prices that becomes stronger as regulation waterbed effect to lie. quantify the waterbed effect for the first becomes progressively more binding. time by looking at the impact of The full empirical analysis allows us to Measuring the waterbed regulation on prices (and profits) in control both for common global trends effect in the mobile reforming countries compared with the and for any country and operator phone industry general evolution of prices (and profits) in characteristics that remain constant over Despite the importance of the waterbed non-reforming countries. time and may influence both regulation effect and the wide range of market Figure 1 plots the average retail price and prices. Our estimates suggest that conditions under which it arises, until for mobile phone usage in countries that although regulation reduced termination now, there has been no systematic have experienced a change in regulation, rates by about 10%, this also led to a evidence to back up the theory. The main six quarters before and after the more than 10% increase in mobile purpose of our research is to examine the introduction of regulation. Notice first that outgoing prices on average. existence and magnitude of the waterbed compared with prices in the rest of the But although the waterbed effect is effect in the mobile phone industry. Using world, average prices in countries that a new dataset of mobile operators across experienced a change in regulation were more than 20 countries during the last actually lower before the introduction decade, we analyse the impact of fixed-to- of regulation. This is important mobile termination rate regulation on prices and profit margins.

27 CentrePiece Autumn 2007

large, our analysis also provides evidence market. Therefore, any regulatory This article summarises ‘Testing the that it is not complete: accounting analysis must take these linkages into “Waterbed” Effect in Mobile Telephony’ measures of profits are positively related to account either at the stage of market by Christos Genakos and Tommaso Valletti, termination rates, thus mobile firms suffer definition or market analysis. CEP Discussion Paper No. 827 from cuts in those rates as they possess ■ Finally, our analysis has implications for (http://cep.lse.ac.uk/pubs/download/ some degree of market power. the current debate about regulation of dp0827.pdf). international ‘roaming charges’ – the Conclusions prices customers pay when using their Christos Genakos is a lecturer in economics The existence and magnitude of the phones outside their home country. at Cambridge University and a research waterbed effect following the regulation of associate in CEP’s productivity and termination rates is key to understanding The European Commission has voted innovation programme. Tommaso Valletti is the social costs and benefits of the to cap roaming charges for making and a professor of economics at Tanaka Business regulation. Regulators have generally receiving phone calls within the EU. These School, Imperial College London. accepted that the waterbed effect is likely charges account for 5-10% of operators’ under perfect competition, but they had revenues globally and a larger proportion doubts about its validity and empirical of their profits. The aim is to reduce the Further reading significance under conditions of imperfect cost of making mobile phone calls while competition. Our research shows that the abroad and hence encourage more Mark Armstrong (2002), ‘The Theory of waterbed effect exists under a wider range overseas (but within EU) phone use. Access Pricing and Interconnection’, in of possible conditions and is both A reduction in roaming charges may Martin Cave, Sumit Majumdar and Ingo significant and strong in practice. cause a similar waterbed phenomenon, Vogelsang (eds), Handbook of These results have important whereby prices of domestic calls may Telecommunications Economics, North- implications for the mobile industry, but increase as operators seek to compensate Holland. also for other ‘two-sided’ markets’ – for their lost revenue elsewhere. Whereas industries like shopping malls, credit cards with fixed-to-mobile termination Mark Armstrong and Julian Wright (2007), and dating agencies, where firms need to regulation, it was fixed users that ‘Mobile Call Termination’, mimeo, University attract two (or more) groups of customers essentially subsidised mobile users, in this College London. if they are to succeed. case, it would be the mobile subscribers themselves that would bear the burden, as Jerry Hausman and Julian Wright (2006), ■ First, it implies that any analysis of the calling abroad would be cheaper but ‘Two-sided Markets with Substitution: Mobile costs and benefits of regulation of calling at home could become more Termination Revisited’, mimeo, MIT. termination rates cannot ignore the expensive. presence of the waterbed effect. The While the likely magnitude of the Jean-Charles Rochet and Jean Tirole (2006), impact of regulation on (unregulated) waterbed effect caused by this new ‘Two-sided Markets: A Progress Report’, prices for mobile subscribers should be legislation is debatable, our results RAND Journal of Economics 35: 645-67. taken into account when assessing the demonstrate that regulators have to overall costs and benefits of regulation. acknowledge its existence and carefully Tommaso Valletti and George Houpis (2005), ■ Second, the mobile phone industry account for it in their calculations of ‘Mobile Termination: What is the “Right” exhibits features typical of two-sided consumer benefits. Charge?’, Journal of Regulatory Economics markets. The market for subscription 28: 235-58. and outgoing services is closely interlinked to the market for termination Regulation to cap Julian Wright (2002), ‘Access Pricing under of incoming calls. As in any other two- roaming charges Competition: An Application to Cellular sided market the structure of prices Networks’, Journal of Industrial Economics (who pays for what) is fundamentally within the 50: 289-316. important for the development of the EU may make domestic calls more expensive

28 Publications Recent CEP Discussion Papers available free from: http://cep.lse.ac.uk/pubs/dp.asp

THE SHIMER PUZZLE AND THE CORRECT MEASURING ORGANIZATION CAPITAL IN THE EFFECT OF INFORMATION AND IDENTIFICATION OF PRODUCTIVITY JAPAN: AN EMPIRICAL ASSESSMENT COMMUNICATION TECHNOLOGIES ON SHOCKS USING FIRM-LEVEL DATA URBAN STRUCTURE Régis Barnichon YoungGak Kim and Yannis Ioannides, Henry Overman, CEP Discussion Paper No. 823 Tsutomu Miyagawa Esteban Rossi-Hansberg and Kurt August 2007 CEP Discussion Paper No. 817 Schmidheiny August 2007 CEP Discussion Paper No. 812 SEARCH FRICTIONS, REAL RIGIDITIES AND July 2007 INFLATION DYNAMICS SPEND IT LIKE BECKHAM? INEQUALITY Carlos Thomas AND REDISTRIBUTION IN THE UK, THE DIVISION OF LABOUR, CEP Discussion Paper No. 822 1983-2004 COORDINATION AND THE DEMAND August 2007 Andreas Georgiadis and Alan Manning FOR INFORMATION PROCESSING CEP Discussion Paper No. 816 Guy Michaels THE EVOLUTION OF INEQUALITY IN August 2007 CEP Discussion Paper No. 811 PRODUCTIVITY AND WAGES: PANEL DATA July 2007 EVIDENCE FREEDOM FRIES Giulia Faggio, Kjell Salvanes and Guy Michaels and Xiaojia Zhi INTERGENERATIONAL MOBILITY AND THE John Van Reenen CEP Discussion Paper No. 815 INFORMATIVE CONTENT OF SURNAMES CEP Discussion Paper No. 821 July 2007 Maia Güell, Jose Rodriguez Mora and August 2007 Chris Telmer TRADE LIBERALIZATION, OUTSOURCING CEP Discussion Paper No. 810 TRUST-BASED TRADE AND FIRM PRODUCTIVITY July 2007 Luis Araujo and Emanuel Ornelas Ralph Ossa CEP Discussion Paper No. 820 CEP Discussion Paper No. 814 HISTORY AND INDUSTRY LOCATION: August 2007 July 2007 EVIDENCE FROM GERMAN AIRPORTS Stephen Redding, Daniel Sturm PRODUCTIVITY, AGGREGATE DEMAND WAGE DISTRIBUTIONS BY and Nikolaus Wolf AND UNEMPLOYMENT FLUCTUATIONS BARGAINING REGIME: LINKED CEP Discussion Paper No. 809 Régis Barnichon EMPLOYER-EMPLOYEE DATA July 2007 CEP Discussion Paper No. 819 EVIDENCE FROM GERMANY August 2007 Karsten Kohn and THE MAASTRICHT CONVERGENCE Alexander Lembcke CRITERIA AND OPTIMAL IS DISTANCE DYING AT LAST? FALLING CEP Discussion Paper No. 813 MONETARY POLICY FOR THE EMU HOME BIAS IN FIXED EFFECTS MODELS OF July 2007 ACCESSION COUNTRIES PATENT CITATIONS Anna Lipinska Rachel Griffith, Sokbae Lee and CEP Discussion Paper No. 808 John Van Reenen July 2007 CEP Discussion Paper No. 818 August 2007 Recent Manpower Human Resources Lab Discussion Papers available free from: http://cep.lse.ac.uk/pubs/opsp.asp?prog=MHRLDP

ARE THERE DAY OF THE WEEK PRODUCTIVITY EFFECTS? Alex Bryson and John Forth For further information on MHRL Discussion Paper No. 4 CEP publications please contact: July 2007 The Publications Unit Centre for Economic Performance TEMPORARY AGENCY WORKERS AND WORKPLACE PERFORMANCE Houghton Street, London WC2A 2AE IN THE PRIVATE SECTOR Telephone +44 (0) 207 955 7284 Alex Bryson Email [email protected] MHRL Discussion Paper No. 3 May 2007 CentrePiece

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