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Does Cultural Diversity of Migrant Employees Affect Innovation? VRIJE UNIVERSITEIT AMSTERDAM IMR 50 th Anniversary Symposium September 30, 2014 New York.

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Presentation on theme: "Does Cultural Diversity of Migrant Employees Affect Innovation? VRIJE UNIVERSITEIT AMSTERDAM IMR 50 th Anniversary Symposium September 30, 2014 New York."— Presentation transcript:

1 Does Cultural Diversity of Migrant Employees Affect Innovation? VRIJE UNIVERSITEIT AMSTERDAM IMR 50 th Anniversary Symposium September 30, 2014 New York 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 Source:


3 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

4 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

5 Source:

6 Positive and negative channels of diversity’s impact on innovation Positive ◦ 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 Negative ◦ 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

7 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

8 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 industry 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

9 Construction of harmonized Dutch and German datasets Netherlands: Community Innovation Surveys (CIS) Tax registers (SSB_Banen) Municipal registrations (GBA) Regional statistics from Statistics Netherlands Data coverage: 2002 & 2006 Germany: IAB Establishment Panel (1% of all establ. & 7% of all employees) Establishment History Panel (BHP) IAB Employee History Panel (comes from Fed Empl Agency’s social security registers) Regional statistics from Federal Statistics Office Data coverage: 2001 & 2004 & 2007 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

10 Some descriptive statistics Mean (St. dev.) The Netherlands Germany Product innovation0.250 (0.433)0.442 (0.497) Fractionalization index0.538 (0.295)0.109 (0.234) Foreignness indicator0.882 (0.321)0.314 (0.464) Establishment size171 (354)123 (563) Share of high-skilled0.235 (0.165)0.068 (0.137) Share of <25 years old0.079 (0.090)0.069 (0.103) Share of 25-45 years old0.603 (0.137)0.551 (0.188) Share of high skilled foreigners*0.212 (0.247)0.067 (0.209) Share of foreigners <25 years old*0.062 (0.141)0.075 (0.187) Share of foreigners 25-45 years old*0.648 (0.265)0.579 (0.352) Observations55863036 * Only establishments employing foreign workers

11 Results 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

12 Addressing reverse causality It is difficult to conceive and implement “randomized trials” in this context 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 regions With this technique, the impact is now statistically significant and even larger in Germany (coefficient 0.4), but no longer in the Netherlands

13 Conclusions 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 desirable 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 responses

14 Thank You!

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