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The impact of cultural diversity on firm innovation: evidence from Dutch micro-data

AbstractAn important question for firms and policy makers is whether the recruitment of foreign workers can boost innovation. Migration studies have demonstrated positive economic impacts of cultural diversity on productivity and innovation at the regional level, but the impacts at firm level are less well known. Merging data from four different sources, provided by Statistics Netherlands, we construct and analyze a unique linked employer-employee micro dataset of 4582 firms that includes qualitative information on firm innovation. We consider both the number of immigrants these firms employ and their cultural diversity. Potential endogeneity of migrant employment is addressed by an instrumental variables approach that accounts for the past geographic distribution of immigrants and the past culinary diversity of the municipality the firm is located in. We find robust evidence that firms employing relatively more migrants are less innovative. However, there is evidence of integration in that this effect is generally less strong or even absent for second generation immigrants. Moreover, firms employing a more diverse foreign workforce are more innovative, particularly in terms of product innovations. The benefits of diversity for innovation are more apparent in sectors employing relatively more skilled immigrants.JEL codesD22, F22, O31

Does Cultural Diversity of Migrant Employees Affect Innovation

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 determined 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.

Immigration and Firm Innovation in Western-Europe: Understanding the Channels of Influence

In most European countries, immigrants became more diversified by country of origin, gender and education levels. Especially the mobility of highly-skilled workers from various countries creates both challenges and opportunities from an economic perspective. This study focuses on the relationship between firm’s innovation performance and intra-firm diversity. It introduces a structured analysis of the mechanisms of influence at different spatial scales, namely from country to firm level, based on the evidence provided by the economics research in Europe.