As is well known, the European Union (EU) devotes a substantial amount of resources to research. The Seventh Framework Programme (FP7), which has just been launched in 2007, will be funding European research until 2013 with a budget of over €50 billion.
FP7 has introduced important innovations in the way resources are distributed. First, the Ideas programme has opened a new funding channel which follows the model of the U.S. National Science Foundation’s individual grants. With a budget of about €7 billion, this programme will promote frontier research actions to be implemented by the newly created European Research Council, with the declared goal to concentrate funds on the best and brightest.
Second, and this is going to be my focus today, FP7 has adopted a co-financing mechanism (the so-called full cost model) for most of its actions involving public bodies such as universities and research organizations. Consider for example the Cooperation programme, which is designed to support international networks of researchers. It is endowed with by far the largest share of the total budget, about €32 billion, to be allocated among 10 broadly defined thematic areas (including socio-economic sciences and humanities with a €0.6 billion budget). Under the new rules, universities are entitled to a maximum reimbursement rate of 75% for the research activities’ full eligible costs. This means that universities have to bear 25% of the full cost of each project. These funds need not be provided cash, but can be covered out of the personnel costs involved in the project. Eligible personnel costs are the costs of the actual person-months worked by the persons directly carrying out the project, where such persons must be on the university payroll and remunerated in accordance with national legislation and practices. This mechanism implies that salary levels in the member countries are going to play a crucial role in the allocation of FP7 funding. Of course, the idea of having participating institutions involved in a co-financing scheme makes perfect sense, and the option to satisfy this requirement by charging personnel costs to the project does too. However, since researchers’ salaries vary widely across member countries, this mechanism activates a potential distortion in the allocation of resources. No distortion would arise if all costs were proportional to personnel costs. This is likely to be the case, for example, for the salaries of additional personnel such as research assistants and post-docs, to be hired specifically under the project. It might also be true for domestic travel and other local services. However, a substantial fraction of research costs – such as computing equipment, data sets, international travel, and subscription, submission and registration fees – are the same no matter where within the EU researchers operate. Moreover, salary differentials across Europe reflect more than just cost of living differentials. A recent research study by the European Commission, based on survey data, shows that salary differentials remain substantial even after adjusting for Purchasing Power Parities. A researcher working in Austria receives on average €60.530 (gross, per year), while the average remuneration in Slovakia is only €18.282. Differences remain huge even within the Euro area, with France at €47.550, Italy at €34.120, Greece at €30.835. In practice, assume for instance that a network involves a university from high-salary country A and one from low-salary country B, and that each university devotes the same amount of human resources to the project. It follows that the university from A commands a larger EU contribution than the one from B, even after adjustment is made for cost of living. This means that researchers in A have more money to spend than those in B, even if they may have to buy the same equipment or travel to the same international conference. Or putting it in another way, researchers in B have to work more hours than researchers in A in order to purchase the same data set. Also, in any country, junior researchers are at a disadvantage if compared to senior, and more severely so in those countries where junior salaries are particularly low. At the macro level, this means that in the end FP7 will support more generously those countries that treat their researchers better since – for equal research effort – these countries will obtain a larger share of the total budget. There is actually nothing wrong with this outcome: rewarding countries that value researchers more activates a virtuous circle that can only benefit research advancement in general. The economic and cultural advantages for these countries are also clear, as is clear who will the losers be.