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Migration, diversity, innovation

Max NathanLSE | NIESR | IZA

LSE London conference, London, 24 March 2014

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What I’m going to talk about

• Context: international, UK, London

• A simple framework

• The evidence

• High-level policy implications

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International context

• Between 2000/1 and 2010/11, in OECD countries:

- 20% rise in migration (100m people)

- 70% rise in skilled migration (27.3m) (UN-DESA / OECD 2013)

• Skilled migrants now comprise nearly 29% of migrants in OECD countries, up from 24% in 2000/1. And rising!

• ‘Skilled’ = qualifications, knowledge, experience

• Need to re-think the likely economic impacts of migrants

• Important implications for migration policy

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Population change in the UK

Source: ONS (2011)

0

50

100

150

200

250

3001

99

2/3

19

93

/4

19

94

/5

19

95

/6

19

96

/7

19

97

/8

19

98

/9

19

99

/20

00

20

00

/1

20

01

/2

20

02

/3

20

03

/4

20

04

/5

20

05

/6

20

06

/7

20

07

/8

20

08

/9

20

09

/10

Thousands

Natural change

Net migration

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London

Source: Hall (2011)

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A growth framework

• Analysis of labour market impacts of migration tends to follow a static, neoclassical framework: one-off shocks, impacts on jobs and wages, migrants assumed to be workers

• Analysis of wider economic impacts needs a dynamic setting:

- Human capital => ideas => long run growth

- Firms invest in innovative capacity, can face constraints

- Trade costs vary with information, co-ordination costs

- New firms enter markets, compete with incumbents

- Migrants have human / social / financial capital, play multiple roles, are imperfect substitutes for native-born

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Places to look

• Firms – effects on productivity and its drivers (via innovation, market access, task substitution)

• Product markets – effects on structure, competition (via entrepreneurship) => and impacts on incumbents

• Labour markets – short term and long term effects (via employer response, historic conditions)

• Consumption – market goods, public services, housing

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Innovation: concepts

• Innovation = the generation and exploitation of new ideas

• It’s a noisy process – lots of ideas, few good / strong ones

• Upstream and downstream aspects of innovation:

- Ideas generation

- Commercialisation of ideas

- Ideas diffusion (Fagerberg 2005)

• How do immigration, diversity fit in?

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Innovation: theory

• Migration may positively select stars / experts

• More diverse teams = improved knowledge spillovers and ideas generation; ideas flow through diasporic groups

• At market level, migrant entrepreneurship may force incumbents to innovate. There will be winners and losers

• Cities like London could amplify these channels: they enhance productivity and have big migrant populations

• Constraints = is this really a migrant ‘x-factor’? Workplace diversity => lower bonding capital, trust? Discrimination?

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Innovation: evidence

• Not as much of it as we’d like …

• US evidence: clear links from skilled migrants and diasporas to innovation and trade, especially in tech sectors

• European evidence: benefits from diverse teams, but effects tend to be small and focused on export-orientated activities

• Cities: evidence suggesting urban spillovers, e.g. Bay Area

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Innovation: London evidence

• London studies / Nathan and Lee 2010, 2013:

- Cross-sectional analysis of 7,600 firms, 2005-2007

- Small diversity bonus from diverse workforce, top teams

- Positive links to ideas generation, but not to revenue growth

- Operates across all sectors, not just the ‘knowledge economy’

- Migrant-diverse firms more exports-orientated

- Small positive link between migrant status and proactive entrepreneurship

- But other factors in the mix too (cf case study evidence)

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Policy implications

• Reasons to expect (skilled) migration to boost innovation in the UK, especially in cities like London

• Less obvious how to design policy to maximise this

• This area of migration policy is basically experimental • Impact evaluation is hard to do: importance of clear rule-

based policy design + open data

• What are the additional effects of migrants on innovation?• What are the distributional effects of migrants?

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Policy implications

•Big question: highly targeted programmes (like Canada, US, NZ, Australia …) or rely on scale / large numbers?

•Tier 1 inflows are tiny compared to e.g. EU/EEA inflows, which are effectively unregulated •But targeted programmes only need a couple of ‘big wins’ •Important to experiment, flex targeted schemes – many parallels to industrial policy

•Should London have its own ‘city visas’? •Yes = London is different, helpful policy experiments •No = complexity, competition, what about other UK cities?

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Thanks.

m.a.nathan@lse.ac.uk

maxnathan.com

@iammaxnathan

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