Category Archives: Policy Note

June 26, 2019. Friederike Welter & André Pahnke on: The German Mittelstand: an antithesis to Silicon Valley entrepreneurship? GLO Research for Policy Note No. 2

Since 2013, GLO Fellow Friederike Welter is head of the Institut für Mittelstandsforschung (IfM) Bonn, a policy-oriented independent research institute on small business and entrepreneurship issues (www.ifm-bonn.org). She also holds a professorship at the University of Siegen. Friederike Welter has broad experiences in applied and policy-related research on entrepreneurship and small business, much of it in an international context. She is a member of several policy-related advisory boards for federal and state ministries and for international bodies. She was President of the European Council for Small Business and Entrepreneurship (2007-2009). For her work on small business and entrepreneurship, she has been honored as ECSB Fellow (2011), as Wilford L. White Fellow of the International Council of Small Business (ICSB, 2014) and she recently received the Greif Research Impact Award (2017). The Frankfurter Allgemeine Zeitung regularly lists her among the most influential economists in Germany.

André Pahnke has studied economics at the Leibnitz University Hannover. First, he worked as a research fellow at the Institut für Arbeitsmarkt- und Berufsforschung, Nuremberg. Since 2011, Dr. Pahnke is a researcher at the Institut für Mittelstandsforschung (IfM), Bonn. His main research fields are International Comparative SME Research, Finance and Apprenticeship Training.

GLO Research for Policy Note No. 2 – Theme 3. Future of work

The German Mittelstand: an antithesis to Silicon Valley entrepreneurship?

by Friederike Welter & André Pahnke

At the international level, many policy makers, academics and business observers are interested in understanding Germany’s “secret economic weapon”, its Mittelstand. It is therefore not at all surprising that foreign officials and business people are making pilgrimages to Germany to learn from the Mittelständler. At the same time, German politicians, journalists, and entrepreneurs travel to the Silicon Valley, to learn from what they perceive to be a vibrant start-up ecosystem, fostering the seemingly endless creation of highly innovative, technology-orientated, venture capital-backed gazelles and unicorns. In meetings with policy makers, one of us is regularly asked why Germany could not have its own Microsoft, Google, Amazon or Facebook. Such statements reflect a current debate in Germany: some perceive the German Mittelstand as a low growth, low-tech and non-innovative approach while in contrast the Silicon Valley entrepreneurship is regarded as the salvation for a doomed German economy. In our recent paper (Pahnke and Welter, 2019), we therefore set out to critically review the assumption of the Mittelstand as an antithesis to Silicon Valley entrepreneurship. We suggest that future research and policies should stand back from dichotomies such as “Mittelstand versus Silicon Valley entrepreneurship” and instead acknowledge the vibrant diversity and heterogeneity of entrepreneurship.
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What we should know

  • Mittelstand is not just about size. There is some confusion about the meaning of the term “Mittelstand”, not only in the media but also among academia. It is often used as a synonym to Small Medium Entreprises (SMEs). However, the small size of Mittelstand businesses is rather a by-product of other key characteristics. Mittelstand entrepreneurs should be first characterized by their independent ownership. They are typically owned by an individual or a family, who is actively involved in the strategic development and management decision-making of their companies and bears the entrepreneurial risks and liabilities of these decisions. The identity of ownership and management should therefore be seen as a key feature when studying Mittelstand ventures.
  • Mittelstand is a mindset. The ideal business model of the Mittelstand combines ownership, leadership and organizational characteristics with individual value systems and attitudes. Due to a number of positive connotations with the term “Mittelstand” in Germany, even large companies – in which the identity feature of the ownership and management is not present – still perceive themselves as Mittelstand. Therefore, emotions, passion and feelings of belonging, play an important role for understanding the Mittelstand.
  • Mittelstand is important for the economy and the society. The Mittelstand is generally considered to be the backbone of the German economy because of its economic contribution in terms of annual sales, export turnover, net value added, employment generation and apprenticeship training. Many studies illustrate, in addition, its substantial contribution to both the economy and the society. Beyond the provision of employment, goods and services, the specific ownership-management structure of the Mittelstand is associated with high levels of social, inter-generational, and regional responsibilities.
  • Mittelstand is as innovative but often in a different way. Regarding the perceived lack of “innovativeness” in Mittelstand firms in comparison to Silicon Valley entrepreneurship, we argue that this is related to a narrow view of innovation. As soon as we apply a wider understanding of what constitutes innovation, the Mittelstand is by no means less innovative. Mittelstand and Silicon Valley entrepreneurship differ with respect to innovations because of different industry structures and target groups. While Silicon Valley innovations are very consumer-oriented and visible to all of us, Germany’s digital and disruptive technologies are first and foremost “deep tech” hidden in products and processes of other companies.
  • Mittelstand has different patterns of employment growth. Silicon Valley entrepreneurship is generally seen as creating many jobs in a relatively short period of time. In contrast, employment growth in Mittelstand ventures has been slower and happening over a longer period of time; although there are also gazelles in Germany. Such comparisons between the Silicon Valley and the Mittelstand are however problematic: they compare apples (a single high-growth company) to oranges (a whole segment of the German economy).

We need more, not less attention to the Mittelstand!

For obvious reasons, the Mittelstand is often seen as an exclusively German phenomenon: it has deep roots in the German history; it stands for a specific German variety of capitalism; and it is strongly influenced by previous and current institutional arrangements in Germany. In our view, however, the Mittelstand is an excellent example of every day entrepreneurship, demonstrating how entrepreneurship that builds on a deep sense of responsibility and solidarity can shape an economy and society and contribute to its world standing. In this regard, the core characteristics of the Mittelstand stand in stark contrast to Silicon Valley entrepreneurship; although one should not overlook important similarities, too. Overall, the Mittelstand is a vibrant segment of the economy. It is competitive, innovative as well as growth oriented; sometimes by other means that are less visible than the well-known uni- or decacorns from the Silicon Valley.

References

Berghoff, H. (2006). The End of Family Business? The Mittelstand and German Capitalism in Transition, 1949-2000. The Business History Review, https://doi.org/10.2307
/25097190

Fear, J. (2014). The secret behind Germany’s thriving ‘Mittelstand’ businesses is all in the mindset. The Conversation. http://theconversation.com/the-secret-behind-germanys-thriving-mittelstand-businesses-is-all-in-the-mindset-25452.Accessed 28 November 2017.

Gantzel, K.-J. (1962). Wesen und Begriff der mittelständischen Unternehmung. Abhandlungen zur Mittelstandsforschung, 4. Wiesbaden: Springer.

Gärtner, C. (2016). Deep-tech in good old Germany: digitale hidden champions. XING Insider. https://www.xing.com/news/insiders/articles/deep-tech-in-good-old-germany-digitale-hidden-champions-532499. Accessed 28 Nov 2017.

Pahnke, A.; Welter, F. (2019): The German Mittelstand: antithesis to Silicon Valley entrepreneurship?, Small Business Economics,  52 (2), 345-358.

Ross Range, P. (2012). The German Model. Report. Handelsblatt. http://www.handelsblatt.com/politik/konjunktur/report-the-german-model
/6966662.html. Accessed 28 November 2017.

Logue, D. M., Jarvis, W. P., Clegg, S., & Hermens, A. (2015). Translating models of organization: Can the Mittelstand move from Bavaria to Geelong? Journal of Management & Organization, 21(01), 17-36.

The Economist (2014). German lessons: Many countries want a Mittelstand like Germany’s. It is not so easy to copy. http://www.economist.com/news/business/21606834-many-countries-want-mittelstand-germanys-it-not-so-easy-copy-german-lessons. Accessed 28 November 2017.

NOTE: Opinions expressed here are those of the authors and not of the GLO, which has no institutional position.

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April 1, 2019. Francesco Pastore & Marco Pompili on their research for Italy ‘What works for youth employment?’. GLO Research for Policy Note No. 1


Francesco Pastore is Associate Professor of Political Economy at the University of Campania Luigi Vanvitelli & Fellow and Country Lead for Italy of the Global Labor Organization (GLO).

Marco Pompili is Researcher at Ismeri Europa and GLO Fellow.

GLO Research for Policy Note No. 1 – Theme 4. Population dynamics: youth employment and participation

What works for youth employment? An evaluation of an Italian regional integrated program of active labour market policies

by Francesco Pastore & Marco Pompili

In a recent GLO Discussion Paper, we have studied the effect of PIPOL (Piano integrato di politiche per l’occupazione e il lavoro), an integrated programme of active labour market policies, launched by the Italian Region of Friuli Venezia Giulia in 2014, to facilitate the increasingly difficult school to work transitions for young people. The programme grouped different funding sources, including those originating from the European Social Fund (ESF) and the Youth Employment Initiative (YEI), (an initiative supporting young people in European Union countries, living in regions with high young unemployment rate). The Programme provided employment and training services to increase the employability of participants.
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What we should know

  • PIPOL is targeted at different groups of people with different needs: Group 1 includes young people aged 15-19 years at risk of dropping out of school; Group 2 includes young NEETs (Not-in-Education-Employment-or-Training) under the age of 30; Group 3 includes under-30 youngsters with a high-school diploma or a professional qualification attained within the last 12 months; Group 4 includes young people under-30 with a university degree obtained at least 12 months earlier; Group 5 includes unemployed people or at risk of unemployment.
  • The participation in PIPOL is structured in three phases. Phase one is registration: young participants who think to be eligible can register on-line or go to a Public Employment Service (PES) or other institutions for specific groups. In phase two, orientation services are provided  and  participants are profiled according to their needs band; this service has to be offered to people within 60 days from the registration to the PESs. An individual action plan is established, showing the type of active policies to be administered. Phase three is the implementation of active measures, such as on-the-job training, classroom traineeship, labour incentives, support to business creation.
  • Our evaluation focussed on the first stage of PIPOL, in particular on the interventions of off-the-job and on-the-job training completed by the end of 2016.
  • Our analysis focused on 4,962 off-the-job training courses and 3,361 internships, that were completed by the end of 2016. In terms of participants, the study covered 7,175 young people, of which 4,059 women. Overall, 3,911 attended off-the-job training; 2,945 attended on-the-job training; and 319 both types of intervention.
  • To assess the impact, we have resorted to a counterfactual approach: a control group is extracted by means of PSM or Mahalanobis matching among those who registered in the program over the years 2014-16, but have never benefited of the program. In other words, the econometric procedure is organized in two steps. In step one, we draw a random sample of individuals from the group of those who registered in the program but did not attend because of the lack of suitable financial resources. The selection is done in such a way that the target and control group have exactly the same characteristics.
  • The Mahanobis matching is more accurate since it implies that only individuals with exactly the same characteristics are selected. In step two, we compare the probability to find a job by the program participants and the control group to see whether the former has a higher probability of employment than the latter. This allowed us controlling for observed heterogeneity through a battery of control variables (age, gender, citizenship, education, province of residence and also pre-program work experience) and for unobserved heterogeneity, by extracting the control group using the same pool of individuals registered in the program.
  • We used data from two main sources: 1) different data banks from the administration of the program and 2) information on outcome variables obtained from compulsory communications  that employers have to make to employment services whenever any labour contract is signed or completed/ended.

What works? On-the-job training has the greatest impact!

  • We found that the net impact of PIPOL is equal to 5 percentage point (pp) on average, meaning that people who benefited from the Programme have an average  probability to be employed 5 percentage points higher than people who did not.
  • The greatest impact was found for on-the-job training, and no significant impact  was observed for in-room training. On-the Job training  also  increased the probability of finding permanent work (+3pp). This is consistent with the view of a youth labour market where young people have excellent theoretical competences, but very little work experience and work-related competences (Pastore, 2015; 2018).
  • The off-the-job training programs did not show statistically significant impact on employment, but did affect the probability to experience at least one labour contract after 2016.
  • These results are partly due to a lock-in effect, namely the tendency of those who attend training programs to put off their effort in job search.
  • Interestingly, we found that the program has a different impact for different typologies of recipients and different types of intervention. The scheme seems to have a greater net impact in the case of women, foreigners and young people with lower education.
  • Some forms of off-the-job training still have a positive net impact on employment chances (training to gain a qualification).
  • Internships in manufacturing and construction show a greater impact than in the service sector, although the service sector is experiencing a larger expansion overall.

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This study represents an important addition to the Italian and global literature on programme evaluation regarding school to work transitions,  considering the small number of such studies, noted also in the recent review of the literature by Card et al. (2010). It is one of the first analysis of the effect of interventions  implemented within the YEI. To our knowledge, there is only a previous paper assessing the impact of YEI in Latvia (Bratti M. et al. 2018) and the evaluation of the Italian YEI (Isfol, 2016), the latter focusing on the very short-term effects. Our findings suggest that active labour market policies for youth are more effective in Italy when they are directly related to the production of work-related competences.

References
Angrist, D. & J. Pischke (2009). Mostly Harmless Econometrics. Princeton University Press, Princeton.
Bratti, M. & al. (2018). Vocational Training for Unemployed Youth in Latvia: Evidence from a Regression Discontinuity Design, IZA Discussion Paper No. 1187.
Card, D., J. Kluwe and A. Weber (2010). Active Labor Market Policy Evaluations: A Meta-Analysis. Economic Journal, 120 (548): F452-F477.
Card, D., & al. (2018). What Works? A Meta Analysis of Recent Active Labor Market Program Evaluations. Journal of the European Economic Association, 16(3): 894-931.
Isfol. (2016). Primo Rapporto di valutazione del Piano italiano Garanzia Giovani. Roma: Ministero del Lavoro.
Pastore, F. (2018). Why So Slow? The School-to-Work Transition in Italy. Forthcoming in Studies in Higher Education.
Pastore, F. (2015). The Youth Experience Gap. Explaining National Differences in the School-to-Work Transition, Springer Briefs in Economics, Physica Verlag, Heidelberg.
Patore, F. & M. Pompili (2019). Assessing the Impact of Off- and On-the-job Training on Employment Outcomes. A Counterfactual Evaluation of the PIPOL Program, GLO Discussion Paper No. 333.

NOTE: Opinions expressed here are those of the authors and not of the GLO, which has no institutional position.

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