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

Abstract

An 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 codes: D22, F22, O31

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…”

Birthplace Diversity and Economic Prosperity

“…Interestingly, they also …nd suggestive evidence that diversity is more valuable in problem-solving oriented tasks and in innovative industries. Ozgen et al (2013) …”

Cultural diversity and plant-level productivity

“…Other studies at the establishment or firm level mostly focus on other outcomes such as patenting activities (see Ozgen et al 2011, Audretsch et al 2010, Chellaraj et al 2008, thereby contributing to the related discussion how diversity affects innovation (also see Niebuhr 2010 andNathan 2011). The study by Parrotta et al (2010) is also related to ours, as they estimate the productivity effects of workforce diversity among Danish firms.…”