Cultural Diversity Impact on Innovation: Migrant Employees Study

VRIJE UNIVERSITEIT AMSTERDAM Does Cultural Diversity of Migrant Employees Affect Innovation? 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 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 See full size image 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 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

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

Some descriptive statistics Mean (St. dev.) Germany The Netherlands Product innovation Fractionalization index Foreignness indicator Establishment size 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) 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* Observations 0.235 (0.165) 0.079 (0.090) 0.603 (0.137) 0.212 (0.247) 0.062 (0.141) 0.648 (0.265) 5586 0.068 (0.137) 0.069 (0.103) 0.551 (0.188) 0.067 (0.209) 0.075 (0.187) 0.579 (0.352) 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

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

http://blogs.sap.com/innovation/human-resources/how-to-effectively-create-workplace-diversity-01242727http://blogs.sap.com/innovation/human-resources/how-to-effectively-create-workplace-diversity-01242727 ThankYou! jpoot@waikato.ac.nz