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Are Culturally D i v e r s e Firms More Innovative ?

Are Culturally D i v e r s e Firms More Innovative ?. Ceren Ozgen 1 , Peter Nijkamp 2 and Jacques Poot 3 1,2 VU University, Amsterdam; 3 University of Waikato, New Zealand . Theoretical Background. Romer 1990, JPE : “ Technological advances come from things that people do.”

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Are Culturally D i v e r s e Firms More Innovative ?

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  1. Are CulturallyDiverseFirmsMore Innovative? Ceren Ozgen1, Peter Nijkamp2 and Jacques Poot3 1,2 VU University, Amsterdam; 3University of Waikato, New Zealand

  2. Theoretical Background • Romer 1990, JPE: “Technological advances come from things that people do.” • IdeasvsHuman capital • Ideas are nonrival (can be used simultaneously everywhere), while human capital is not… • Human capital = education + ability (Human capital turns ideas into outputs). • Current era of extensive circulation of ideas; and extensive circulation of human capital → Migration as a mechanism • SUPPLY SIDE: The knowledge transferred by migrants is necessarily selective and distinctive: Not everybody is migrating; not every migrant is the same (Borjas 2000, Williams 2007) • DEMAND SIDE: This transferability is contingent on the production conditions (organisationalculture, labour market structure, legislation) =Defines receptivity at the destination (and extend of barriers) • Follows • Romer 1990, Borjas 2000, Jones and Romer2011 (ideas, institutions, population and human capital matter more than Kaldor’s facts on physical capital and growth) • →endogenous tech. change, skill-selective migration, migrant diversity and innovation.

  3. Migration Literature • Small number of papers discussing within firm effects of migrants (e.g. Lee & Nathan 2010 in London ). The available literature offers 2 main streams of research: • 1st branch: Effect of foreign entrepreneurs/students/inventors on innovations (Faggian and McCann 2009; Kerr 2009; Kerr and Lincoln 2008; Hunt and Gauthier-Loiselle 2008; Zucker and Darby 2007) • 2nd branch: Effect of migrant externalities from diverse regions on innovations/productivity (Ozgen et al. 2011, Niebuhr 2010, Mazzolari and Neumark 2009, Sudekum 2009, Ottavaino and Peri 2005) • 3rd branch: A significant policy quest.; Are there some productivity enhancing externalities gained from within firms diversity?

  4. What Do Multinationals Say? Forbes, Aug 2011 FORBESInsights: Diverse and inclusive workforce is crucial to encouragingdifferent perspectives and ideas that drive innovation Strong convincement on positive externalities of diversity: Out-of-the box thinking matters!

  5. Possible ways of interaction-knowledge exchange within firms Decomposing the Concept of Diversity • Exposure • Exposure to foreigners: Co-location index (Degree of potential contact) • Scale of others • Scale of foreigners: Share of foreigners • Composition of foreigners • Diversity of the workforce: Diversity (Fract.) index • Richness • Variety of others in a firm: Unique number of birthplaces

  6. Description of the Data • This study combines 3 confidential high-quality firm/individual level micro-datasets obtained from Statistics Netherlands • Tax Records (SSB_Banen) – 10 million obs. • Community Innovation Survey (CIS 3.5-CIS 4.5), (Survey + Census for 50+ empl. firms) about 11000 observations in each period. • Dutch Municipality registrations (GBA) – 16 million obs. CIS is a regular snapshot of infrastructure /inputs /outputs /obstacles for innovation and firms • Our Dataset is a panel linked employee-employer dataset (LEED): • CIS_SSB : obtain the actual number of employees per firm per location • CIS_SSB_GBA : obtain the actual number of foreign employees per firm + their charac.

  7. Methodology I: Data and EstimationTechnique Sample Information for the Panel Dataset: • Total number of firms : 5 590 • Total number of employees : about 1 million employees • Total number of foreign employees : 105 587 (~11% of employees in the sample) • A 2-wave panel data of a sample from 2000 to 2006: • Pr(Innovate) : • Firm is aninnovator • New products/services are introduced • New processes are introduced Pr(Innovate)it = f(Firmscharac., Regional features, Employee charac.)it + ui+ error termit

  8. Covariates • 1. Firmscharacteristics: • Firm size (lnfirmsize) • Obstacles to innovation (lack of personnel) • Firms’ opennes to change (internal organizational changes wrt third parties) • 2. Regional features: • Market structure (firms/jobs per municipality) • Competition (firms/km2) • 22 Macro-sector FE • 3. Employee characteristics: • Background measures (birthplace) • Skills of employees • Youthfulness of employees (demographics) • Diversitymeasures • 4. Time FE

  9. Methodology II-Diversity Measures • Scale: Shfori = ∑foreigni/employeesi • Composition: Divi = • Richness: Uniquei= i: firm, j birthplaces

  10. Some Definitions in the Micro-datasets: (Simple definitions-highly complex procedures) • Firm: is a company with an autonomous production and decision features, while there is a strong outward orientation (Documentatierapport CIS, 2002) • Innovation: A firm is an innovator if during the reporting period it has strongly improved a current product (process) and/or produced a new product (process). If the firm has cancelled an innovation it is also an innovating firm. • the NEWNESS leads to radical, major and dramatic change + • improvement of existing products/services/processes • In our study: • Foreigner is a person who was NOT born in the Netherlands.

  11. Descriptives • Firms • 40 % of the firms innovated • Firms are active in multiple innovation types • The change of innovativeness in 2000-2006 (Random or structural?) • 0=0; 1266 • 1=1; 751 • 1=0; 365 • 0=1; 419 • Employees • On average 18 foreign empl per firm // 10 unique birthplaces // 11% of firm employment is foreigners • 65% of foreigners are between 25-45 years old • 22% of foreigners are high-skilled • About 30% of foreigners are from the European continent

  12. The Context of the StudyPeriod in the NL • Migrant employment

  13. Firm size Distribution

  14. Firm size by Foreigners

  15. Location of Firms • Top five NUTS 3 regions with respect to number of firms (34% of all firms) • Groot-Amsterdam • Groot-Rijnmond • Utrecht • Twente • Zuidoost-Noord-Brabant

  16. Results I

  17. Results II – Market Orientation matters!

  18. Results III- Sectors matters!: Chemicals; Metals; Machinery and Equipment

  19. Tentative Conclusions • Different types of innovations have different requirements • Results are consistent with general theories about innovation (role of firm size, operational constraints, etc.) • It is not about “quantity” of immigration but about composition and quality of the labourforce • Skills absolutely matter • Main driver of innovations appears to within the firms, not spillovers from just the presence of migrants in the regions

  20. Thank you c.ozgen@vu.nl p.nijkamp@vu.nl jpoot@waikato.ac.nz

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