Does Cultural Diversity of Migrant Employees Affect Innovation?

Does Cultural Diversity of Migrant Employees Affect
Ceren Ozgen, VU University Amsterdam and EUI
Cornelius Peters, IAB Nord
Annekatrin Niebuhr, Christian-Albrechts University
Peter Nijkamp, VU University Amsterdam
Jacques Poot, University of Waikato
IMR 50th Anniversary Symposium
September 30, 2014
New York
2009-2013 PROJECT:
Part of:
NORFACE Research Programme on Migration
MIDI-REDIE:Team Composition
Department of Spatial Economics, VU University Amsterdam, The Netherlands
Institute for Employment Research (IAB), Nuremberg, Germany
Institute for Social and Economic Research (ISER), University of Essex, UK
Labour Institute for Economic Research, Helsinki, Finland
Department of Economics, University of Tartu,Tartu, Estonia
MIDI-REDIE research on the impact
of immigration on innovation
Key question: Does the presence of migrants from a
diverse range of backgrounds in a region, or within a
firm, boost innovation and productivity?
 Various projects
Meta-analysis of empirical literature (productivity effect)
Pan-EU regional level (patents effect)
Linked employer-employee panel data (innovation effect)
Global macroeconomic panel data (productivity effect)
The IMR paper:
◦ Synthesis of existing literature
◦ Comparative German-Dutch analysis with harmonized
data and (almost) identical modelling
Positive and negative channels of
diversity’s impact on innovation
◦ Within the organisation
Positive self-selection
Knowledge spillovers and networks
Enhanced decision-making and resilience
Migrants reducing business constraints through filling vacancies
◦ Externalities
 Cultural diversity as an amenity
 Agglomeration benefits
 Benefits from the strength of weak ties and bridging social capital
◦ Within the organisation
 Fractionalization (affecting communication, trust, treatment, mobility)
 Greater labor intensity of production discourages adoption of new technology
◦ Externalities
 Sorting and segregation
 Bonding social capital, potentially leading to polarization
 Fragmentation in representation
Measurement of cultural diversity
Cultural diversity refers to the extent of cultural
differences among members within a social unit, i.e. it
is a multidimensional concept
Indicators may include birthplace, ethnicity, race,
language, ancestry, religion, etc.
The growing complexity of demographic composition
in most cities is referred to as “superdiversity”
Common measures include the share of “foreigners”,
the fractionalization index, the entropy index, the
number of groups present (“cultural richness”)
The mathematical and statistical issues of
measurement of diversity continue to attract
considerable interest
A synthesis of the evidence to date
Major differences between North-American and
European literatures
Strong evidence of spillover benefits from foreign
students and researchers
On balance, positive effects of cultural diversity on
patent applications and innovation
Cultural diversity matters, but is of relatively less
importance for innovation than e.g. business size and
Many studies are not able to adequately address the
difficult issue of reverse causality: intrinsically
innovative firms and regions may disproportionally
recruit or attract workers from diverse backgrounds
Construction of harmonized Dutch
and German datasets
IAB Establishment Panel (1% of all
Community Innovation Surveys
Tax registers (SSB_Banen)
Establishment History Panel (BHP)
Municipal registrations (GBA)
IAB Employee History Panel (comes
Regional statistics from Statistics
establ. & 7% of all employees)
from Fed Empl Agency’s social security
Regional statistics from Federal
Statistics Office
Data coverage: 2001 & 2004 & 2007
Data coverage: 2002 & 2006
Panel of firms:
2 wave balanced panel of ~2800 firms for Dutch firms
3 wave balanced panel of ~1012 firms for German firms
Only private sector establishments
Some descriptive statistics
Mean (St. dev.)
The Netherlands
Product innovation
Fractionalization index
Foreignness indicator
Establishment size
Share of high-skilled
Share of <25 years old
Share of 25-45 years old
Share of high skilled foreigners*
Share of foreigners <25 years old*
Share of foreigners 25-45 years old*
* Only establishments employing foreign workers
0.250 (0.433)
0.538 (0.295)
0.882 (0.321)
171 (354)
0.442 (0.497)
0.109 (0.234)
0.314 (0.464)
123 (563)
0.235 (0.165)
0.079 (0.090)
0.603 (0.137)
0.212 (0.247)
0.062 (0.141)
0.648 (0.265)
0.068 (0.137)
0.069 (0.103)
0.551 (0.188)
0.067 (0.209)
0.075 (0.187)
0.579 (0.352)
A coefficient of about 0.1 for the diversity
effect on innovation in both countries, but
not statistically significantly in Germany
 We can’t detect an effect of increasing
diversity within firms over time, probably
because the change in firm employment
composition over 4-6 years is so small
 Firm characteristics that drive innovation are
the same in both countries
 Skills matter – applies equally to migrants
and natives
Addressing reverse causality
It is difficult to conceive and implement “randomized trials” in this
Econometricians therefore use instrumental variables (IV)
techniques that
◦ Identify and use factors that can explain observed cultural diversity
within a firm
◦ But these factors should have no direct link with a firm’s innovation
Firms are expected to mostly employ people from their own
vicinity, so IV reflect this:
◦ For the Netherlands: the number of unique countries of birth in the
municipality where the firm is located
◦ For Germany: the average cultural diversity in similar firms in other
With this technique, the impact is now statistically significant and
even larger in Germany (coefficient 0.4), but no longer in the
Firm size, sector, location and staff skills matter most
for innovation
 There is a small positive effect of cultural diversity,
but to quantify it remains challenging
 Replication across a wider range of countries is
 Cross-disciplinary integration of team diversity and
innovation studies could be fruitful
◦ Consider organizational structures, institutional settings,
types of tasks, etc.
This could help to identify the specific “channels” of
impacts of cultural diversity on innovation
 In turn, this may assist in designing effective policy
Thank You!
[email protected]

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