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News Retirement at 69 – a Matter of Reason and Fairness German Economy Continues to Show Unexpected Strength Enrollment Fees: Australian Model Facilitates Financing Presentation of the Joint Economic Forecast to the Society of Friends and Supporters Berlin Office Active for RWI in Three-fold Mission No. 2/2011 Editorial Retirement at 69 – Das Sparpaket darf and nichtFairness auseinanderfallen a Matter of Reason and prepared a statement (www.sachverstaendigenratwirtschaft.de). One of the recommendations for action contained in the statement addressed to policymakers was to gradually raise the statutory retirement age to 69 by the year 2060. Persons born from 1991 and later would thus be affected by this change. The publication of this statement resulted in reactions that were heated in part. SPD General Secretary Andrea Nahles refuted the “reading of tea leaves for 2060”, calling it dubious, and claimed that it was “nothing but a pension cut”. Some articles pointed to the much-cited example of roofing installers who at the age of almost 70 would still have to be able to climb around on roofs. The German population is growing older while tending to become healthier. That is very good news. At the same time, fewer children are being born than are elderly dying, which is leading to a population decline. That is not very good news, however. In their impact on the social systems, the two effects will mutually reinforce one another, confronting the Statutory Retirement Pension scheme with tremendous problems in the future, as a dwindling number of contributors will have to fund pension benefits paid out for an increasingly longer period. We members of the Expert Advisory Board to Assess Overall Economic Development (SVR) have recently investigated, on behalf of the federal government, these “Challenges Posed by Demographic Change” 2 RWI News 2/2011 That reaction is wrong, for two reasons. First, the SVR statement proposes, with regard to retirement age, a review of special solutions for certain professions. Second, the long-term consequences of major pension policy decisions unfortunately do not allow us time until 2060 to decide on a general response to the fact of ever-increasing life expectancy. If the retirement age of 67 were maintained after 2030, contribution rates would have to be increased considerably in order to prevent a funding collapse. On the other hand, don’t employees already have to bear a relatively heavy burden in social contributions? Instead, it would seem only fair to split the gain in life expectancy between a prolonged employment phase and retirement – at a ratio of 2:1, for example. Once we have agreed in principle on a similar compromise, all other special cases could also be resolved by consensus. At any rate, acting as if there is no such thing as demographic change is no solution at all. Christoph M. Schmidt Christoph M. Schmidt Research News German Economy Continues to Show Unexpected Strength RWI is revising its economic cycle forecast upward, now expecting the German economy to grow by 3.7% this year, after a March forecast of 2.9%. In the meantime, domestic demand is driving growth more than demand from abroad. For 2012, RWI is expecting the GDP to increase at a less vigorous rate of 2.3% as a result of investment activities losing momentum. At the same time, foreign trade is expected to account for a smaller share of growth. The job market will probably continue to expand, albeit at a slower rate in the coming year. The situation of public budgets will probably also improve considerably during the forecast period. On the other hand, the repercussions of the financial crisis continue to represent a substantial risk for the business cycle in Germany. The German economy continues to experience a vigorous upswing. During the first quarter the seasonally adjusted figure for real gross domestic product increased by 1.5% over the previous quarter, and indicators are suggesting an additional increase for the current quarter. While foreign demand continues to contribute to growth, domestic demand has come to play a more dominant role. Private consumption expenditures increased at a constant, but not especially high, rate. Investments, both in equipment and buildings, were the major drivers of economic expansion. Building investments in particular benefit from the unusually low real interest rates, a consequence of the ECB’s expansionary monetary policy as well as of the reputation of German capital market securities, which foreign investors regard as a safe haven. Early indicators would suggest that growth will come to a halt during the second half of the year. The volume of orders received continued to increase at a noticeable rate until most recently, and the mood among businesses is still very optimistic when compared over the long term, even though recent surveys reveal a slight downturn. The increases will probably be smaller than in the first quarter, however. This has already become evident considering that the first quarter benefited from several special factors, among them renewed building activity, which began (in a manner untypical for the season) in February and March and partially made up for the loss in construction production that had resulted from the early onset of winter in December 2010. Another factor was the Easter holidays, which came exceptionally late this year and consequently did not have an effect on economic activities during the first quarter. In addition, the global economy has in the meantime lost momentum. Japan’s short-term production losses in the wake of the earthquake have probably played a certain role in this development. Beyond this, a number of emerging countries have in the meantime recognized the threat of an overheating economy and responded with a more restrictive economic policy. Considering these developments, foreign demand is expected to grow at a slower rate than previously seen. Domestic demand, in contrast, is expected to grow at a strong and stable rate, and will probably continue to be stimulated by real capital market interest rates, which are expected to have an expansionary effect in Germany, despite any further cautious interest rate hikes by the ECB. The proportion of disposable income will probably also grow at an accelerated rate, spurred by expected further growth in employment, a sharper rise in actual earnings and an improved profit situation. Based on this scenario, the upward trend in private consumption expenditures is likely to persist, while investment activity will also continue at an elevated level, even if the growth rates seen recently cannot be maintained. In sum, we expect real GDP to grow by 3.7% in 2011. Labor shortages fuel wage and salary increases Considering the rising production levels, a continued rise in employment levels is expected. The number of persons in employment is predicted to grow by an average of 1.2% for the year as a whole. On the other hand, a shortage of skilled employees is becoming evident within certain sectors of the labor market. This development probably accounts for the accelerated rise in wages and salaries, which is being seen more for actual earnings than for wages based on collective agreements, suggesting that companies are RWI News 2/2011 3 Research News Key figures of the forecast of June 2011 2010 to 2012; changes in relation to previous year in % 2010 2011s 2012s 3.6 3.7 2.3 0.8 1.6 1.2 0.5 1.7 1.1 1.9 1.3 1.3 6.0 9.0 5.7 10.9 12.9 7.3 Construction 2.8 6.5 4.5 Other investments 6.4 6.5 6.1 Change of reserves (contribution to growth) 0.6 –0.3 –0.1 Domestic demand 2.4 2.7 2.0 Trade balance (contribution to growth) 1.3 1.2 0.4 Exports 14.7 8.3 6.1 Imports 13.0 6.5 5.8 40 490 40 990 41 350 3 239 2 947 2 650 7.7 7.0 6.3 Gross domestic product (GDP)1 Final demand1 Consumption expenditures Private Households2 State Investment expenditure Equipment Employed persons3, in 1000 Unemployed persons4, in 1 000 Unemployment rate5, in % Consumer prices6 1.1 2.4 2.3 Unit labour costs7 –1.0 0.4 1.7 In billion Euro –82 –34 –5 In % of nominal GDP –3.3 –1.3 –0.2 Balance of payments9, in billion Euro 141.4 141.0 157.0 Financial balance of the state8 Own calculations according to information from the Federal Statistics Office, the Federal Bank of Germany and the Federal Labor Agency. – 1 Adjusted for price changes. – 2 Including non-profit private organizations. – 3 Domestic figuers. – 4 National differentiation. – 5 In differentiation of the Federal Labor Agency. – 6 Consumer price index. – 7 Remuneration per employee in relation to real GDP per employed person. – 8 In differentiation of the national income accounting. – 9 In differentiation of the balance of payment. – S Own Estimate. 4 RWI News 2/2011 increasingly paying wage supplements. Yet the wage and salary levels regulated by collective agreement are also likely to see a strong hike in the coming year. Unit labor costs will consequently rise at an accelerated rate. These developments lead us to expect, on the one hand, a higher domestic inflation rate as well as retarded growth in employment. Growth in domestic demand is likely to slow down in consequence. In addition, exports will probably contribute less to economic growth, since foreign demand is expected to increase at a slower rate and Germany’s ability to compete with international price levels will deteriorate somewhat. According to our estimates, real GDP growth will slow down to 2.3% in the coming year. Inflation, while expected to rise to a level of 2.4% this year, will probably level off slightly to 2.3% in 2012. Whereas inflation this year will probably largely result from increasing import prices, domestic inflation will be the major contributing factor next year. This is based on the assumption that the level of commodity prices remains unaltered compared with previously observed levels. With core inflation continuing to rise during the forecast period, there is an imminent risk of inflation pressure building up, which could prove a threat to medium-term price stability. Economic upswing brings additional revenues to public budgets The situation of public budgets is likely to improve considerably during the forecast period. A substantial volume of additional revenues can be expected on account of the economic upswing and of rising inflation, while expenditures for social benefits will probably decrease in the wake of economic growth. Public debt is consequently expected to decline to a level of 1.3% relative to the GDP this year and, further, to 0.2% next year, which would represent an almost balanced budget. Thus, the German economy continues to show unexpected strong growth, and we are once more revising the forecast for 2011 upward. A major factor in this development is the low level of real interest rates; Research News since introduction of the euro, rates have not remained for any extended period at a level comparable to that recorded in the past eighteen months. However, considerable risks are still threatening. The repercussions of the financial crisis are far from having been absorbed. The eurozone continues to be troubled by the high level of debt among many member countries, while government debt in the United States has also reached a dangerous level. An additional threat is the supply of liquidity, which the central banks had broadly expanded in response to the financial crisis but have not yet reduced to any substantial degree. There is consequently a significant danger of renewed excesses and of rising inflation levels worldwide. student loans, the ICL measures the monthly repayment sum based on the subsequent income of the student in question and may not exceed a fixed proportion of his or her income. This prevents excessive financial burdens on the graduates. It also reduces the number of graduates who are unable to pay back their loans. Models of this kind have been used successfully in Australia and New Zealand for many years. Information: [email protected], [email protected] West German university graduates have the highest income Enrollment Fees: Australian Model Facilitates Financing Enrollment fees are reasonable, but it should be possible to finance them through special loans whose repayment is based on subsequent income. Student loans of this kind, based on the Australian model, could also be used extensively in Germany. This is the result of a recent study conducted by the RWI and the Australian National University. It shows that an “income-contingent loan” considerably reduces the graduate’s perceived financial burden. Giving German students a share in the expenses of their studies by means of enrollment fees makes economic sense. In order to ensure efficiency and equality, however, it should be possible to finance the enrollment fees using special loans which are available to as many students as possible and can be paid off easily. The “income-contingent loan” (ICL) is a fee model which possesses these attributes. A current study conducted by the RWI and the Australian National University arrived at these findings. In contrast to conventional A frequent argument against enrolment fees is that the fear of being unable to pay back a loan taken out to finance the fees or having to undergo severe financial restrictions could deter many students from studying. Income-dependent loans based on this ICL model would be suited to assuaging this fear of potential students. Enrollment fees of € 3,500 per year over a 5-year period were assumed for the model calculations in the study. This results in a total sum of € 17,500 to be paid back within 10 years. The 2007 “Microcensus”, compiled by the Federal Statistical Office, provided the information on the income conditions of male and female graduates in West and East Germany. According to the above census, male West German graduates earned the most, on average, in 2007 (gross annual income: € 51,525), followed by male East German graduates (€ 33,629), female West German graduates (€ 26,930) and female East German graduates (€ 24,600). The calculations indicate that, with conventional loans, university graduates with an average income would have to spend 7.8 to 14.1% of their gross income paying off the loans in the first year of repayment. In lower income groups, the burden would rise to up to 26.8%. ICL: Installments should not amount to more than 8% of the gross income Unlike conventional loans, the repayments for incomedependent credits such as the ICL are based on income. The repayment usually begins 2 years after graduation, as long as a certain income has been reached by this point in time. The maximum limit for the installments RWI News 2/2011 5 Research News is fixed as a proportion of income. As a rule of thumb, not more than 8% of the gross income should be spent on amortizing the loan. The state assumes default guarantees if students are unable to pay back their loans. Based on this scenario, the repayment period would amount to 7 to 12 years for graduates with an average income or 11 to 22 years for the lowest income groups. These findings are comparable with those of other countries, such as Australia and New Zealand, where income-dependent student loans have been successfully used for years. This article is based on Ruhr Economic Paper #244 „Student Loan Reforms for German Higher Education: Financing Tuition Fees“. You can find it as pdf-download at http://en.rwi-essen.de/publikationen/ruhreconomic-papers/. Information: [email protected], [email protected] Procurement of Research Contracts Impact Evaluation of the Electricity Access Roll Out Program (EARP), Rwanda. Commissioned by: IOB, Ministry of Foreign Affairs, Netherlands. Contact Person: Dr. Jörg Peters. Term: 3 years Evaluation of Renewable Energy Activities in Indonesia. Commissioned by: IOB, IOB, Ministry of Foreign Affairs, Netherlands.Contact Person: Dr. Jörg Peters. Term: 3,5 years Impact Evaluation of On-Grid Electrification in Urban Mozambique. Commissioned by: Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ). Contact Person: Gunther Bensch. Term: 8 months 6 RWI News 2/2011 Hessen’s energy resource supply risk. Commissioned by: State Statistical Office of Hessen. Contact Person: Prof. Dr. Manuel Frondel. Term: 1 month Cost-efficiency of hospitals at the federal state level. Commissioned by: Verband der Ersatzkassen e.V. Contact Person: Dr. Boris Augurzky. Term: 6 months Events Presentation of the Joint Economic Forecast to the Society of Friends and Supporters The Society of Friends and Supporters of RWI invited the public to the presentation of the Joint Economic Forecast for spring 2011 at the RWE Tower in Essen on May 10. The head of the RWI Growth and Cycles Division, Prof. Dr. Roland Döhrn, presented the most significant findings of the report, voicing optimism in the face of the continued upswing. The members of the RWI Society of Friends and Supporters had the opportunity on 10 May 2011 to obtain first-hand information about the results of the Joint Economic Forecast for the spring of 2011. At the outset Good prospects for prolonged upswing in Germany In his presentation, RWI Growth and Cycles head Prof. Roland Döhrn clearly pointed out the three risks threatening the current global economic recovery: the euro crisis and the crisis in public finances in Europe, high prices on commodity markets and the growing risk of inflation, and the earthquake in Japan and ensuing consequences. He referred to Germany’s economic situation as unchanged and highly stable. Döhrn stated that there was a good probability of the upswing continuing. Yet he added that finance policymakers should nonetheless not take advantage of the sound budgetary position to heap up more debt and should avoid “clandestine” tax hikes. of the event, RWI President Prof. Christoph M. Schmidt extended his greetings to the guests at the RWE Tower and provided information about recent activities at RWI, including progress in construction (almost finished), appointments and doctoral graduates, as well as current topics (the euro crisis, energy, demographic change) and third-party-funded projects. Afterwards RWI Growth and Cycles head Prof. Roland Döhrn presented the findings of the current Joint Forecast. RWI is jointly commissioned, along with other economic research institutions, by the federal government to prepare the economic forecast on a semi-annual basis. The title of the current report is “Upswing Continues – European Debt Crisis Still Unresolved”. RWI News 2/2011 7 News from Berlin Berlin Office Active for RWI in Three-fold Mission The RWI Berlin office is on a three-fold mission in the federal capital: aid in policy consulting, strengthen economic policy communication and deepen collaboration with researchers. The Berlin team has been active in these areas, in addition to completing research in their respective areas of expertise. Nils aus dem Moore from the RWI Berlin office during the panel discussion on the topic of “Growth amid controversy” held by the Konrad Adenauer Foundation Policy consulting One focus of the work is aiding RWI President Prof. Christoph M. Schmidt as expert in the German Bundestag’s commission inquiring into the topic of “growth, prosperity and quality of living”. In addition to sharing in the efforts of the “Measuring prosperity” project group, Nils aus dem Moore responded to a number of requests to conduct background talks by members of parliament and Bundestag staff as well as by researchers interested in the subject. A very different topic led him to the Federal Ministry of Finance in May: As part of the continuing education series organized by the policy department, he gave a presentation entitled “On the way to Maastricht 2.0? National financial policy in Europe between coordination and subsidiarity”. In early June, Dr. Tanja Kasten took part in the “Science meets Parliament” event at the German Bundestag. At the event, organized by the Liebniz Society, scientists visit the offices of delegates to the Bundestag and their staffs to discuss current research topics and develop 8 RWI News 2/2011 Prof. Manuel Arellano from Madrid spoke about econometric methodology for panel data during the BeNA lecture series contacts. Ms. Kasten presented to the staff of Christine Scheel (responsible for SME policy in the Bündnis90/ Grüne Bundestag faction) the most recent analyses by RWI on the question of “Who carries the state?”(RWI Position no. 43). The distribution of tax and public fee burdens across income brackets and household types was discussed on the occasion, as were options for reforming the social security contribution scheme for low wage-earners. Economic policy communication In early April, the newspaper Handelsblatt published a series of six features, each encompassing several pages, entitled “Germany Unadorned”. The series dealt with the challenges facing the German economy and the prospects for the future. RWI was commissioned as the collaborating research partner to contribute figures and supporting analyses. Nils aus dem Moore was responsible for coordinating the project. Parallel News from Berlin to the series, the RWI analyses appeared in the RWI Positions series, which was redesigned for the occasion (refer to page 11). In the context of the series a “Germany Dinner” with a panel discussion featuring prominent speakers was held by Handelsblatt at Hotel Adlon. Dr. Ronald Bachmann and Nils aus dem Moore took the opportunity to establish contacts and strengthen existing ones. Future prospects were also the topic at the conference entitled “Will what worked yesterday work tomorrow as well? Growth amid controversy” organized by the Konrad Adenauer Foundation on April 7. Following the introduction by CDU General Secretary Hermann Gröhe, three keynote speeches by scientists were scheduled. Nils aus dem Moore made a presentation on the empirical significance of growth for gainful employment and social security and later participated in the panel discussion focused on the tense relationship between ecology and economy. The BeNA lecture series attracted a large number of scientists to Humboldt University Cooperation with researchers The lecture series by Prof. Manuel Arellano of Madrid, organized by the Berlin Network for Employment Market Research (BeNA) with the involvement of Dr. Michael Kvasnicka, was a tremendous success. The three lectures and the research presentation, dealing with econometric methodology for panel data, on April 7 and 8 were attended by about 140 visitors to Humboldt University. Those in attendance came from each of Berlin’s universities, from numerous scientific institutions in the region, numerous universities and research institutions in Germany between Rostock and Freiburg (as well as from Essen, of course) and from other countries, including Finland, Spain and Belarus. A great many participants also took advantage of the opportunity to discuss their own research issues with Prof. Arrelano personally during the consultation hours offered. It was the seventh lecture series organized by the BeNA association, of which RWI is a member through the Berlin office. The main activity of the association is the weekly Leibniz Seminar for Employment Market Research, where members of the institutions participating in the network as well as exceptional junior researchers from Germany and other countries present their research projects (visit the website at www.arbeitsmarktforschung.net). Michael Kvasnicka, initiator of the network and reelected chairman of the board of BeNA in December 2010, sees the records set by the lecture series, both in terms of number of participants and the many regions they came from, as evidence that “our activities are regarded as an attractive platform for employment market economists and researchers in empirical economics throughout Germany and at the international level.” RWI was represented at Humboldt University in May once again. At the 11th Economic Symposium of the Humboldt Economic Forum entitled “Outgrown? Growth in Perspective with Sustainability”, Nils aus dem Moore discussed the question “Economy – the Key to Happiness?” with a panel of guests, including Swiss economist Matthias Binswanger, Austrian philosopher Charlotte Annerl and environmental scientist Roland Zieschank from the Free University of Berlin. The discussion centered on new findings concerning the relationship between economic growth, quality of living and satisfaction, as well as on current efforts toward improving prosperity measurement. Information: [email protected], [email protected] RWI News 2/2011 9 Publications Ruhr Economic Papers Download at http://en.rwi-essen.de/publikationen/ ruhr-economic-papers/ (256) Frondel, M. Modeling Energy and Non-energy Substitution – A Survey of Elasticities (247) Clausen, V. und H. Wohltmann (257) Bauer, T. K., R. Flake und M. Sinning Oil Price Shocks and Cyclical Dynamics in an Asymmetric Monetary Union Labor Market Effects of Immigration – Evidence from Neighborhood Data (248) Luhan, W. J., M. W.M. Roos und J. Scharler (258) Keese, M. An Experiment on Consumption Responses to Future Prices and Interest Rates Thrift y Wives and Lavish Husbands? – Bargaining Power and Financial Dicisions in Germany (249) Ehlert, C., J. Kluve und S. Schaffner (259) Trax, M. Training + Temp Work = Stepping Stone? – Evaluating an Innovative Activation Program for Disadvantaged Youths Productivity and the Internationalization of Firms – Cross-border Acquisitions versus Greenfield Investments (250) Behl, P., H. Dette, M. Frondel und H. Tauchmann (260) Bauer, Th.K., S. Bender, A. Paloyo und Ch.M. Schmidt Choice is Suffering: A Focused Information Criterion for Model Selection Do Guns Displace Books? – The Impact of Compulsory Military Service on Educational Attainment (251) Giesen, K. und C. Schwarz Trade, Wages, FDI and Productivity (252) Beckmann, J., A. Belke und F. Dobnik Cross-section Dependence and the Monetary Exchange Rate Mode – A Panel Analysis RWI Materialien Download at http://en.rwi-essen.de/publikationen/ rwi-materialien/ (66) Augurzky, B., A. R. Reichert und M. Scheuer (253) Heinrich, T. Communication and Reputation in Procurement Auctions – Some Empirical Evidence (254) Brosig, J. und T. Heinrich Reputation and Mechanism Choice in Procurement Auctions – An Experiment (255) Bredemeier, C. und H. Goecke Sticky Prices vs. Sticky Information – A Cross-Country Study of Inflation Dynamics 10 RWI News 2/2011 Faktenbuch Medizinische Rehabilitation 2011 (2011 Fact Book on Medical Rehabilitation) As part of the healthcare system, medical rehabilitation has the mission of helping the chronically ill to participate in the life of society at large and to live self-determined lives. This is accomplished by preventing, eliminating or improving functional disorders and social impairments (i.e. disabilities, unemployability, need for nursing care) arising from illnesses, or by deterring any substantial deterioration of the individual’s condition. Rehabilitation consequently contributes toward employees being able to participate longer in the world of work and toward avoiding early retirement and the need for nursing care. Publications With this in mind, the 2011 Fact Book on Medical Rehabilitation is aimed at providing an overview of the medical rehabilitation system in Germany, as well as of its underlying principles and effectiveness. (67) Augurzky, B., R. Gülker, S. Krolop, Ch.M. Schmidt, H. Schmidt, H. Schmitz und St. Terkatz Krankenhaus Rating Report 2011 (2011 Hospital Rating Report) – the Fat Years are Over A total of 12% of hospitals were in the “red” zone in 2009 (i.e. running a high risk of insolvency), while 75% were in the “green” zone and the remaining 13% in between. The mean probability of defaulting was 1.2%. Compared with 2008, when 14% of hospitals were in the red zone and only 69% in the green, the economic situation has improved. The analysis is based on a sample of 687 annual reports from 2008, including a total of 1,035 hospitals, and 366 from 2009. Statutory funding (pursuant to the KHG) was increased considerably in 2009, for the first time since 1995. The increase has probably not averted the long-term decline, however. Rather, the action was more likely an anti-cyclical stabilization measure in response to the financial crisis. Based on a figure of 10% of a hospital’s revenues, considered necessary for annual investments, an investment gap of 30 billion euros has accumulated since 1991. Yet hospitals are filling that gap to an increasing extent by investing their own capital. RWI Positionen Download at www.rwi-essen.de/positionen (only in German) RWI Positions nos. 42 to 46 were prepared to provide research support for the Handelsblatt series “Deutschland ungeschminkt “(Germany Without Unadorned) along with more detailed insights. (42) Bachmann, R., C. Ehlert und Ch.M. Schmidt Wir tschaf tsleistung, Wer tschöpfung und Wachstumspotenziale in Deutschland (Economic Performance, Net Product and Growth Potential in Germany). 1 April 2011 Amid the joy over economic recovery in the wake of the financial and economic crisis, it should not be overlooked that the German economy is facing tremendous challenges. These include demographic change and restructuring of the energy supply in addition to the shift to the heightened importance of the globalized world economy. This edition of RWI Positions distills recommendations for action from a discussion of the issues of economic performance, net product and growth potential that is based on historical experience and economic considerations. (43) Beimann, B., R. Kambeck, T. Kasten und L.-H.R. Siemers Wer trägt den Staat? Eine Analyse von Steuer- und Abgabenlasten (Who Carries the State? An Analysis of Tax and Fee Burdens). 1 April 2011 In discussions of a “fair” system of taxation and public fees, the argument is often heard that in Germany the “middle class” bears a disproportionate share of the burden and “top earners” contribute too little to financing public budgets. This edition of RWI Positions submits to an empirical assessment the public perception that burdens are unfairly distributed. In performing the assessment, the predominant distribution of burdens in 2010 arising from direct and indirect taxation as well as from social security contributions were estimated by referring to representative microdata. (44) B. Augurzky, S. Felder and A. Tinkhauser Perspektiven des Gesundheitssektors: Wachstumsmotor oder Milliardengrab? (Perspectives on the Healthcare Sector: Growth Driver or Bottomless Pit?) 1 April 2011 The healthcare sector is an important driving force in the economy. The demographic development, progress in medical technology and greater prosperity have caused a disproportionate rise in healthcare expenditures in recent decades. Many factors would indicate continued growth: first, an aging population has the effect of increasing expenses; second, progress in medical technology results in growing demand for RWI News 2/2011 11 Publications healthcare services; and third, it can be assumed that the share of individual income spent on healthcare services will increase with growing prosperity. At the same time, the number of individuals financing the healthcare system is declining. Unless the status quo changes, a substantial funding gap will be seen. more geared toward consumers and investments in shaping future society, as well as on questioning the growing preponderance of funds spent as part of “social budgets”. Finally, attention is devoted to the expected consequences of demographic change, to explicit and implicit public debt as well as to the closely related issue of the sustainability of public finances. (45) M. Frondel, N. Ritter and C. M. Schmidt Die Kosten des Klimaschutzes am Beispiel der Strompreise (The Cost of Climate Protection – Illustrated by Electricity Prices). 1 April 2011 Since the beginning of the new millennium, electricity prices have gone in only one direction – up. The main cause has been taxes as well as charges and fees, set by law, which for the most part are motivated by the urge to protect the climate. Without such charges being introduced and gradually increased, there would have been no increase in the cost of electrical power for private households since 1998. This RWI Position analyses the causes for the price hike by referring to the example of a household with an annual electricity requirement of 3,500 kWh. Special attention is paid to fees earmarked for promoting alternative sources of electricity such as solar power, which consumers are required to pay as part of their electricity bills. (46) N. aus dem Moore, B. Beimann, H. Gebhardt and R. Kambeck Der Weg zu nachhaltigen Finanzen: Weniger Soziales, mehr Investitionen (The Path to Sustainable Finances: Fewer Social Expenses and More Investments). 1 April 2011 How have government revenue and expenditures in Germany changed over time in terms of scope and structure, and how should the current situation be judged? By posing these questions, this edition of RWI Positions addresses the longstanding debate over the “appropriate” extent of government involvement and the issue of an “optimum” ratio of government spending GDP. The empirical analysis comes before the evaluation, however. The RWI Position paper thus first presents an overview of the structure and development of government revenues and expenditures along with the related funding problems. The paper focuses on analyzing the relationship between social benefits 12 RWI News 2/2011 (47) H. Gebhardt, R. Kambeck and F. Matz Der NRW-Haushalt für das Jahr 2011: Scheinerfolge bei der Konsolidierung (The 2011 NRW Budget: Apparent Consolidation Progress). 17 Mai 2011 A red-green minority government has been in power in North Rhine-Westphalia for almost a year. In the area of budget and financial policy, the supplementary budget for 2010 must be regarded as a flop, since the legislation was found to be unconstitutional by the State Court of Constitution in a decision published on 21 December 2010. On May 18, the state legislature is scheduled to vote on the state government’s budget proposal for 2011. With expenditures amounting to about 55 billion euros and revenues set at over 50 billion euros, 4.8 billion euros in net additional funding will need to be borrowed in order to achieve a balanced budget. It is absolutely correct to use additional tax revenues resulting from the improved economic cycle for reducing the level of new debt. However, policymakers should simultaneously begin to downsize the structural deficit in order to achieve a structurally balanced state budget, as prescribed by the brake on spending. Up to now, budget and finance planners have responded inadequately to this comprehensive need for consolidation. Instead, in keeping with the idea of “preventive financial policy”, an expenditure hike has been planned. RWI Arbeitsbericht 2010 Download at http://en.rwi-essen.de/publikationen/ arbeitsberichte/ (only in German) The RWI Annual Report for 2010, entitled “Well Prepared” (Gut gerüstet), has been published. The report provides details of the institute’s business year and research activities. The printed report is available at the institute. Internal Jochen Kluve Appointed to Chair at the Humboldt University Dr. Jochen Kluve, head of the RWI Berlin office, has been appointed to the chair of Empirical Labor Economics at Humboldt University’s School of Business and Economics in Berlin. The labor market expert has been active for RWI as a researcher since 2003. He was head of the Labor Markets, Population and Health research division at RWI from 2003 to 2008, and in 2007 he took over leadership of the newly established RWI office in Berlin. His research papers have been published in peer-reviewed professional journals, including the Economic Journal, Economic Policy, the Journal of Applied Econometrics and Labour Economics. Jochen Kluve took up teaching duties at HU Berlin during the current summer semester, offering a course in methods for evaluating economic policy measures. RWI Receives “job and family audit” Certificate RWI in Berlin received the “job and family audit” (audit berufundfamilie) certificate on 25 May 2011. As holder of such a certificate, RWI pledges to further enhance the transparency and visibility of existing efforts toward promoting families and to support the compatibility of job and family. Sabine Reinhard, head of the Human Resources and Legal Division, General Administration service division at RWI, accepted the certificate on behalf of RWI from Peter Hintze, Parliamentary State Secretary at the Federal Ministry for Economy and Technology. The official sponsors of the “job and family audit”, an activity of the non-profit organization Hertie Foundation, are Federal Family Minister Dr. Kristina Schröder and Federal Economics Minister Dr. Philipp Rösler. Besides RWI, nine other institutes belonging to the Leibniz Society received certificates. An annual review is held to ensure the implementation in practice of the specific objectives and actions defined in the audit procedures. Three years after the Christoph M. Schmidt Elected to Board of Trustees of MPI Munich RWI President Prof. Christoph M. Schmidt has been elected as deputy chairman of the board of trustees of the Max Planck Institute for Tax Law and Public Finance in Munich. He has been a member of the board since July of last year. The main focus of research at the interdisciplinary institute is national and international taxation as seen from a legal and economic perspective. While the legal division does research in a wide variety of topics related to business and tax law, the economic division is concerned with research issues in the areas of finance studies and fiscal policy. RWI human resources head Sabine Reinhard accepted the “job and family audit” certificate from State Secretary Peter Hintze certificate is initially awarded, a reaudit takes place to verify the extent to which set objectives have been reached and to define advanced objectives, which are then agreed upon. The certificate is confirmed only for companies and institutions successfully completing the reaudit, and these may subsequently continue to display the quality seal. Reviews are held every three years. RWI News 2/2011 13 Internal Presentation of the RWI Scientific Advisory Board economics, with the results being published in journals such as the Journal of Econometrics, the Journal of Human Resources, the Economic Journal and the Review of Economics and Statistics. According to the statute of RWI, the Scientific Advisory Board is intended to advise the institute on scientific matters. Prof. Till Requate (until 7 June 2011) The board is made up of at least six and no more than twelve internationally respected scientists or other experts in one of the institute’s fields who are professionally active. The tasks are to supervise, advise on and evaluate the scientific aspects of work performed at the institute, as well as to evaluate the research program, to prepare the report for the Administrative Board and to promote the institute’s work. We introduced three previous members in the 1/2011 edition of RWI News (Prof. David Card, Prof. Clemens Fuest, Prof. Walter Krämer). The other three members, who have since left the board after completing their terms, follow here. New members were appointed to the Scientific Advisory Board in June 2011. The new board will be introduced in coming editions of RWI News Prof. Michael Lechner (until 7 June 2011) Michael Lechner has been professor of Empirical Economics and Econometrics at the University of St. Gallen since 1998. He is currently Managing Director of the Swiss Institute for Empirical Economic Research (SEW). Between 1985 and 1989, Michael Lechner pursued studies at the University of Heidelberg and at the London School of Economics and Political Science. He completed his doctorate in Mannheim, where he additionally qualified for university teaching. Lechner has done research on a variety of topics, including the evaluation of labor market programs, the labor market in eastern Germany, econometric methodology, the labor market effects of sports activities, and population 14 RWI News 2/2011 Till Requate has held the chair for Innovation, Competition Policy and New Institutional Economics at the University of Kiel since 2002. Previously he was professor of Macroeconomics at the University of Heidelberg. There he was head of the Interdisciplinary Institute for Environmental Economics and was speaker of the post-graduate group for environmental and resource economics. He completed his doctorate at the University of Bielefeld, where he additionally qualified for university teaching. The focus of his research is environmental economics, experimental economics and innovation economics. Among the journals in which Requate has contributed articles are: Economics Letters, the European Economic Review, the Journal of Public Economics, the Journal of Economic Dynamics and Control and Experimental Economics. Prof. Nina Smith, Ph.D. (until 7 June 2011) Nina Smith is a professor at the Aarhus School of Business and director of the Centre for Research in Integration and Marginalization. For many years she has been a member of several advisory commissions in Denmark (including the Danish Council of Economic Advisors, the Danish Government’s Research Commission and the Danish Social Science Research Council). Her research primarily focuses on the labor market (labor supply, women, immigrants, the Internal poorly qualified), income inequality, income tax and the social state. Nina Smith has published articles in journals such as Economica, Oxford Economic Papers and Applied Economics. “What is the latest on ...” ...Peter Hohlfeld Peter Hohlfeld has been the head of the department of Overall Macroeconomic Balance and Business Cycle Analysis at the Macroeconomic Policy Institute (IMK) of the Hans Böckler Foundation since 2005. He was active at RWI between 1993 and 2005 in the International Economic Relations research group within the Growth and Cycles division. Before that Peter Hohlfeld had studied macroeconomics at the University of Essen and subsequently worked in the department of macroeconomics at Hamburgische Landesbank in Hamburg, at the Institute for European Economic Research of the University of Wuppertal and as a staff member at the Ministry of Economics of the federal state of North Rhine-Westphalia. 1. What did your work at RWI teach you that you can apply in your present job? Among other things, I was able to acquire the expertise for business cycle analysis and forecasting. I became familiar with and applied the various forecast methods that I still find useful today. 2. What do you remember best about your time at RWI? The intense and yes, sometimes heated, discussions about forecasts and especially about statements made in response to policy recommendations. Not to forget a number of legendary birthday parties. 3. How is what you are doing now different from your work at the institute? The work is the same at the core but has become more complex and multi-faceted. At IMK I am responsible for the forecast practically for all of Germany – except for the labor market. The media contacts have also increased considerably. 4. In your opinion, what is the greatest challenge that German research facilities will be faced with in the future? For some time we have been seeing a shift in the focus of economic research institutes – DIW Berlin for example. The original objective of being a purely academic institution has apparently not provided the recipients of research, particularly policymakers, with the expected benefits. The institutes continue to face the challenge of acting as a bridge between science and politics. 5. Which question would you like to answer? Who could have imagined that the transition to greater pluralism in the economic sciences would take place so quickly at German universities? RWI News 2/2011 15 RWI News No. 2/2011 (June) Publisher: Rheinisch-Westfälisches Institut für Wirtschaftsforschung Hohenzollernstr. 1 – 3 45128 Essen, Germany Phone: +49–0201–8149-0, Fax: +49–0201–8149-200 [email protected] www.rwi-essen.de All Rights Reserved Editor: Prof. Dr. Christoph M. Schmidt Editorial office: Sabine Weiler (Fon -213), Joachim Schmidt Layout: Julica Bracht, Daniela Schwindt, Benedict Zinke Photos: berufundfamilie gGmbH, Julica Bracht, Christine Kurka, Henning Lüders, Benedict Zinke ISSN 1612-3581