Does Cultural Diversity of Migrant Employees Affect Innovation?

VRIJEUNIVERSITEITAMSTERDAM

IMR 50th Anniversary SymposiumSeptember 30, 2014New York

Ceren Ozgen, VU University Amsterdam and EUICornelius Peters, IAB NordAnnekatrin Niebuhr, Christian-Albrechts UniversityPeter Nijkamp, VU University Amsterdam Jacques Poot, University of Waikato

Source: www.linkedin.com

2009-2013 PROJECT:MIGRANT DIVERSITY AND REGIONAL DISPARITY IN EUROPE (MIDI-REDIE)

Part of:NORFACE Research Programme on Migration

http://www.norface-migration.org/

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

Source: http://www.elegran.com/edge/2011/12/jane-jacobs-and-new-york-city-part-2

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

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 dateMajor differences between North-American and

European literaturesStrong evidence of spillover benefits from foreign

students and researchersOn balance, positive effects of cultural diversity

on patent applications and innovationCultural 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

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 firms3 wave balanced panel of ~1012 firms for German firmsOnly private sector establishments

Some descriptive statistics

Mean (St. dev.)

The Netherlands Germany

Product innovation 0.250 (0.433) 0.442 (0.497)Fractionalization index 0.538 (0.295) 0.109 (0.234)Foreignness indicator 0.882 (0.321) 0.314 (0.464)Establishment size 171 (354) 123 (563)

Share of high-skilled 0.235 (0.165) 0.068 (0.137)Share of <25 years old 0.079 (0.090) 0.069 (0.103)Share of 25-45 years old 0.603 (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)

Observations 5586 3036

* Only establishments employing foreign workers

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

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

ConclusionsFirm size, sector, location and staff skills matter

most for innovation There is a small positive effect of cultural diversity,

but to quantify it remains challengingReplication across a wider range of countries is

desirableCross-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

http://blogs.sap.com/innovation/human-resources/how-to-effectively-create-workplace-diversity-01242727

Thank You!

jpoot@waikato.ac.nz