Does Cultural Diversity of Migrant Employees Affect Innovation?

Abstract

Increasing international labor migration has important effects on the workforce composition of firms in all migrant-receiving countries. The consequences of these changes for firm performance have attracted growing attention in recent years. In this paper, we focus explicitly on the impact of cultural diversity among migrant employees on the innovativeness of firms. We briefly synthesize empirical evidence from a range of contexts across Europe, North America, and New Zealand. We then utilize two unique and harmonized linked employer-employee datasets to provide comparative microeconometric evidence for Germany and the Netherlands. Our panel datasets contain detailed information on the generation of new products and services, determinants of innovation success, and the composition of employment in establishments of firms over the period 1999 to 2006. We find that innovation in both countries is predominantly deter-1 The empirical research reported in this paper was conducted as part of the 2009-2013 Migrant Diversity and Regional Disparity in Europe (MIDI-REDIE) project, funded by the NORFACE-Migration research program, <www.norface.org>. Financial support from the German Research Foundation (DFG) is also gratefully acknowledged as part of the projects "Diversity and success of organizations" and "Diversity and individual careers." IMR Volume 48 Number S1 (Fall 2014):S377-S416 S377 mined by establishment size and industry. Moreover, obstacles encountered and organizational changes faced by firms drive innovation too. With respect to the composition of employment, the presence of high-skilled staff is most important. Cultural diversity of employees has a positive partial correlation with product innovation. The size and statistical significance of this effect depends on the econometric model specification and the country considered. We conclude from the literature synthesis and the new comparative evidence that cultural diversity of employees can make a positive, but modest and context dependent, contribution to innovation.

Cultural diversity: a matter of measurement

“…While most research finds that there is a positive causal link from migrant diversity to regional productivity and innovation, the relationship is complex and may be specific to certain industries, types of firm, or types of workers (for a review, see Ozgen et al, 2014). In addition, there has been a series of new studies -largely on the basis of micro data -that have aimed to assess the disaggregate benefits of cultural diversity, for instance, on the degree of firm's innovativeness (e.g., Ozgen et al, 2013), on entrepreneurship (e.g., Audretsch et al, 2010;Sahin et al, 2010), on plant productivity (e.g., Haas and Lucht, 2013;Trax et al, 2012), on labor demand (e.g., Brunow and Blien, 2014), on income (e.g., Brunow…”

Human Resources and Innovation: Total Factor Productivity and Foreign Human Capital

“…Ozgen,5 Nijkamp and Poot (2013) using firm level data from Dutch firms find a negative effect for the share of migrants, but a positive effect for their diversity on the innovativeness of firms. However, Ozgen et al (2014) also find that when firms from two countries are analysed (Germany and the Netherlands) the effect of diversity on innovation at the firm level varies considerably according to the specific country and according to the econometric specification chosen. McGuirk and Jordan (2012), using data from Irish firms, find a positive effect for the diversity of immigrants on the probability of introducing product innovations.…”

Foreign Workers Are Associated with Innovation, But Why? International Networks as a Mechanism

“…Studies of the relationship with innovation outcomes directly are a relatively recent phenomenon, but contributions by Niebuhr (2010), Ozgen, Nijkamp, and Poot (2011), Nathan and Lee (2013), among others, have helped to fill in this gap. For the most part, these studies find a positive association between the two phenomena, although several studies find no significant effects or significant effects only for some groups (e.g., Østergaard, Timmermans, and Kristinsson 2011;Parrotta, Pozzoli, and Pytlikova, 2014;Ozgen et al 2014). …”