Are Culturally D i v e r s e Firms More Innovative ?
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Are Culturally Diverse Firms More Innovative? Ceren Ozgen 1 , Peter Nijkamp 2 and Jacques Poot 3 1,2 VU University, Amsterdam; 3 University of Waikato, New Zealand
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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.” - PowerPoint PPT Presentation
Transcript of Are Culturally D i v e r s e Firms More Innovative ?
Are Culturally Diverse Firms More Innovative?
Ceren Ozgen1, Peter Nijkamp2 and Jacques Poot3
1,2 VU University, Amsterdam; 3University of Waikato, New Zealand
Theoretical Background Romer 1990, JPE: “Technological advances come from things that
people do.” Ideas vs Human 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 (organisational culture, labour market structure, legislation) = Defines receptivity at the destination (and extend of barriers)
Follows Romer 1990, Borjas 2000, Jones and Romer 2011 (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.
Migration Literature
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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?
What Do Multinationals Say? Forbes, Aug 2011
FORBESInsights:
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!
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
Description of the Data
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This study combines 3 confidential high-quality firm/individual level micro-datasets obtained from Statistics Netherlands
a. Tax Records (SSB_Banen) – 10 million obs.b. Community Innovation Survey (CIS 3.5-CIS 4.5), (Survey + Census
for 50+ empl. firms) about 11000 observations in each period.c. 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.
Methodology I: Data and Estimation Technique
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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 an innovator New products/services are introduced New processes are introduced
Pr(Innovate)it = f(Firms charac., Regional features, Employee charac.)it + ui + error termit
Covariates 1. Firms characteristics:
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) Diversity measures
4. Time FE
Methodology II-Diversity Measures
Scale: Shfori = ∑foreigni /employeesi
Composition: Divi =
Richness: Uniquei =i: firm, j birthplaces
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1
1N
jij
s
N
jij
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Some Definitions in the Micro-datasets: (Simple definitions-highly complex procedures)
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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.
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
The Context of the Study Period in the NL Migrant employment
Firm size Distribution
Firm size by Foreigners
Location of Firms Top five NUTS 3
regions with respect to number of firms (34% of all firms)
1. Groot-Amsterdam2. Groot-Rijnmond 3. Utrecht 4. Twente5. Zuidoost-Noord-
Brabant
Results Iinnovative innovative innovative product process
ln(Firm size) 0.708*** 0.595*** 0.568*** 0.545*** 0.413***0.048 0.054 0.072 0.087 0.069
Lack of personnel 0.087*** 0.088*** 0.088*** 0.092*** 0.046***0.017 0.017 0.017 0.016 0.012
Lack of financial resources 0.035** 0.034** 0.034** 0.023* 0.0030.014 0.014 0.014 0.014 0.011
Openness to change 1.23*** 1.21*** 1.21*** 1.37*** 1.13***0.118 0.117 0.117 0.124 0.103
Firms per jobs (Nuts 3 level) -0.231 0.202 0.174 -2.24 2.632.6 2.6 2.6 3.04 2.41
Firms per km2 -0.001 -0.001 -0.001 -0.001 -0.0010.001 0.001 0.001 0.001 0.001
Intensity of co-location (by birthplace)* - - -0.001** -0.002** -0.001**0.001 -0.001 0.001
lnunique - - 0.228** 0.100 0.248**0.105 0.125 0.100
Diversity index (excl.natives) - 0.526** 0.167 0.610** 0.0820.201 0.234 0.277 0.229
Sh of foreigners - -0.647 -0.936* -1.28** -0.5230.394 0.485 0.655 0.461
Sh of high skilled frg - 0.421** 0.389** 0.652** -0.0310.181 0.181 0.207 0.181
Sh of frg aged 25-45 - 0.382** 0.311** 0.263 0.0590.142 0.144 0.17 0.143
Constant -3.38*** -3.30*** -3.36*** -3.91*** -3.83***0.458 0.461 0.476 0.56 0.449
Sector FE Yes Yes Yes Yes YesTime FE Yes Yes Yes Yes YesN 5586 5586 5586 5587 5588LR -2950 -2937 -2927 -2582 -2669
Results II – Market Orientation matters!International International International Domestic Domestic Domestic
innovative product process innovative product processFirms per jobs (Nuts 3 level) 2.37 -0.027 5.43* 0.986 -1.96 3.19
3.81 4.40 3.29 2.67 3.12 2.45Firms per km2 -0.002 -.003** -0.001 -0.001 -0.001 -0.001
0.001 .001 0.001 0.001 0.001 0.001Intensity of co-location (by birthplace)* -0.005** -0.007*** -0.001 -0.001** -0.002** -0.001**
0.002 .002 0.002 0.001 0.001 0.001lnunique 0.409** 0.256 0.399** 0.221** 0.087 0.256**
0.173 0.201 0.155 0.107 0.129 0.102Diversity index (excl.natives) -0.185 0.359 -0.255 0.178 0.609** 0.007
0.364 0.408 0.326 0.241 0.285 0.235Sh of foreigners -0.837 0.299 -0.773 -0.929* -0.523 -0.542
0.836 0.982 0.740 0.506 0.609 0.476Sh of high skilled frg 0.301 0.786** -0.018 0.450** 0.615** -0.016
0.258 0.290 0.237 0.188 0.216 0.187Sh of frg aged 25-45 0.299 -0.072 0.098 0.269* 0.213 0.038
0.211 0.244 0.196 0.149 0.175 0.146Constant -3.03*** -4.23*** -3.55*** -3.56*** -4.08*** -3.95***
0.728 0.864 0.629 0.503 0.59 0.469Sector FE Yes Yes Yes Yes Yes YesTime FE Yes Yes Yes Yes Yes YesN 2864 2864 2864 5350 5350 5350LR -1503 -1487 -1578 -2785 -2472 -2548
Results III- Sectors matters!: Chemicals; Metals; Machinery and Equipment
Firms per jobs (Nuts 3 level) 9.579.00
Firms per km2 0.0010.004
Intensity of co-location (by birthplace)* -0.0020.003
lnunique -0.3180.504
Diversity index (excl.natives) -0.4600.879
Sh of foreigners 8.6**3.39
Sh of high skilled frg 2.19**0.719
Sh of frg aged 25-45 1.61**0.531
Constant -3.52**1.45
Time FE YesN 650LR -354
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 labour force
Skills absolutely matter Main driver of innovations appears to within
the firms, not spillovers from just the presence of migrants in the regions
