Can Mass Migration Boost Innovation and Productivity?

Yves here. This post brings up an important issue, or perhaps to put it another way, looks at historical precedents to see if there is the potential for better outcomes for the exodus from the Middle East to Europe than we are seeing now. But it does not acknowledge a big background problem: weak economic conditions and lousy employment levels in Europe even before the influx took place. That hurts immigrants of all types, but low skilled ones most of all

Another factor it ignore is that even highly-skilled immigrants in times of reasonable prosperity usually take a step or two down on the economic ladder when they emigrate, due to lack of connections and credibility (for instance, inability of the locals to evaluate their educational skills and career attainments in their former home), as well as in almost all cases, less than stellar fluency in their new language. Plenty of Jewish professionals fleeing Germany in the 30s wound up in more modest jobs, like doorman or clerk. The article does not address the fact that professionals in warp-torn Middle Eastern states were the first to go. The Australian media reported extensively in 2003 on how the departure of doctors and well-heeled business men from Iraq who decided it was best to get out with what they could since they could see they had nothing to gain and even more to lose by staying, because it increased the damage to Iraq to lose a big swathe of its educated classes. So there has already been migration of the more skilled members of many of these societies, but apparently on a gradual enough basis so as not to register as significant.

By Nuria Boot, Research Assistant in the area of Competition Policy, and Reinhilde Veugelers, professor at KULeuven (BE) in the Department of Management, Strategy and Innovation and former advisor at the European Commission (BEPA Bureau of European Policy Analysis). She was also the President-Elect of EARIE (European Association for Research in Industrial Economics. Originally published at VoxEU

The long-term impact of migration on innovation and productivity growth in host countries is a neglected issue in the current debate on refugees. Research shows that these effects can be substantial, but if Europe wants to capitalize on this potential it will need better information systems to match migrants’ skill sets with host environments.

As we have seen at various points in history, skilled migrants can have a substantial impact on the host economy through innovation and productivity growth, even when arriving in large numbers. These effects are beyond the direct contribution of the skilled migrants themselves.

One important channel of impact is indirect, through the transfer of knowledge from migrant workers to native workers in the host country. However, analysis shows this takes a long time to materialize, and the effects are not obvious.

Migrants’ skills need to complement those of the host economy, host economies need a strong native human capital set that is able to learn from migrant skills, and migrant and host skills need to be sufficiently connected.

The effects of skilled migration

Borjas (1994) develops a theory model to show how immigrants with high levels of productivity who adapt rapidly to the host labour market can make a significant contribution to economic growth in the host economy. This contribution is not only direct, through the higher productivity of the migrants themselves, but also indirect, by raising the productivity of the native human capital through transfer of know-how.

Borjas (1995) also explores when immigration can be beneficial for economic growth.  When immigrants’ skills are sufficiently different from native workers’ skills, and when their characteristics are complementary to the native factors of production, this can lead to an “immigration surplus”. However, Borjas’ research does not look at the impact of mass migration on host productivity growth.

The Huguenots

When the Huguenots were outlawed in France by Louis XIV in the 17th century, thousands of skilled migrants fled to other European countries. Hornung (2014) analyses the impact of this mass skilled migration on host productivity growth.

About 20,000 people went to Brandenburg-Prussia (which had a population of about 1.5 million), and about 5,000 to Berlin, where they represented about 20% of the town’s total population. The Huguenots were known for being well educated and holding skilled occupations.

The Prussian King, Friederich Wilhelm I, selected Huguenots according to their skills and assigned them to the Prussians towns depopulated by the Thirty Years’ War and the Black Death.

Hornung uses the historic records of this natural experiment where Huguenots were placed in selected Prussian towns, in combination with firm-level data on the value of inputs and outputs for all 693 textile manufactories in Prussian towns in 1802.  He finds that immigration had long-term positive effects on productivity in textile manufacturing, where the Huguenots had specific skills.

The effects found are sizeable: a 1 percentage point increase in the share of Huguenots in 1705 led to a 1.4 percentage point increase in productivity in textile manufacturing in 1802. Most effects were indirect, through technology transfers which increased the productivity of local textile plants.

Even if the Huguenot manufacturing plants did not survive, technology was transferred to local manufacturing plants by training workers. However, these indirect transfers took a long time to materialize, due to the gap in native textile skills in Prussia at the time and to language issues.

Mass migration from Nazi Germany

The Jewish migrants who left Germany for the United States in the 1930s and 1940s are another example of forced mass skilled migration. By 1944, over 133,000 German Jewish émigrés had found refuge in the United States. Most were urban white-collar workers and one fifth were university graduates.

Moser, Voena and Waldinger (2014) use the research fields in which dismissed German Jewish émigré chemists were specialized pre-1933, and compare changes in U.S. patenting by U.S. inventors in these research fields with changes in U.S. patenting by U.S. inventors in the fields of other German chemists.

The authors find sizeable positive effects. They estimate a 71 percent increase in local patenting. The authors also document the multiple channels through which these effects materialized:

  • The arrival of the migrants encouraged U.S. inventions by helping to attract new domestic inventors to the research fields of émigrés, rather than by increasing the productivity of incumbent U.S. inventors in these fields;
  • Co-inventors of migrants became active patentees in the fields of migrants especially after 1940, and continued patenting through the 1950s;
  • Co-inventors of co-inventors of migrants also substantially increased their inventive activity in émigré fields after 1933, and remained substantially more productive throughout the 1950s and 1960s.

Potential effects of low-skilled migration

Preliminary work by Rachel Harris suggests that mass migration may positively impact host economies’ innovation capacity, even if migrants are low-skilled. She studied the Mariel Boatlift, a mass emigration of Cubans to the USA in 1980, as a natural experiment.

Little precise information is available on how many people came to the United States during the Mariel Boatlift or exactly where they settled. The most reliable sources (Card, 1990) indicate that between April 1980 and June 1981, 120.000-126.000 Cubans entered the US labour market, about half settling in Miami, and half in the rest of Florida. Many of the migrants were low-skilled and had a low level of English.

Nevertheless, Harris finds that the Mariel Boatlift caused an increase in patents in Florida, in technological categories with low barriers to entry. She suggests that this could be because individual inventors had access to a large supply of low-skilled labourers, and were able to hire them to do housework, child care and other manual work. This allowed these inventors to substitute away from housework and spend more time inventing, leading to an increase in patenting.

Lessons for the current crisis

From these historical studies it can be seen that skilled migration can have a substantial effect on productivity growth in the host economies.  But this requires migrants’ skills to be matched to the needs of host economies.

Unfortunately, reliable systematic data on the skills of the current migration wave is not widely available. One of the most up-to-date sources of information is from the Swedish Employment Services, where refugees are asked to provide information on their education as part of an ‘establishment programme’.

In 2015, most of the refugees accepted onto the programme had less than 9 years of education, as shown in the figure below. Interestingly however, the second biggest share of refugees had higher education. This bodes well for the long term impact of migrants’ skills on the host economy.

Screen shot 2016-02-11 at 5.23.25 AM

If Europe wants to capitalize on the potential for long term effects on productivity growth from its migrants, European leaders must better balance migrants’ skills and the needs of host countries.

Currently it is not possible to match migrants to the skills base of the host regions in Europe, as systematic information on incoming skills is missing.

A better information system on the incoming migrants’ skills is needed, in order to match migrants better with the hosting environments, and ensure that their potential to boost innovation and productivity growth is not wasted.

Positive spillover effects from matched skills will also be larger and faster with smaller language barriers.  The earlier migrants can take language courses, the quicker they can integrate into the labour market and the faster spillover effects can materialize.

Implementing this information system, and matching skills and environments at the European level would benefit migrants and host countries on a  larger scale. It would reduce fixed set up costs, and allow for better matches.

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  1. Vatch

    The Borjas articles about skilled immigration were written before the huge wave of H-1B and L-1 immigrants arrives in the U.S. It’s also interesting that the author cites Borjas about the effects of skilled immigration, but cites someone else about the effects of unskilled immigration. I did not read his long articles; I just skimmed portions of them. Here’s a paragraph about unskilled immigration near the end of the 1994 Borjas article:

    In the past ten years, many more
    brushstrokes were applied to the canvas,
    and the theme and shape of the picture
    changed. The new research established a
    number of new stylized facts: The relative
    skills of successive immigrant waves
    declined over much of the postwar period;
    it is unlikely that recent immigrants
    will reach parity with the earnings of natives
    during their working lives; although
    there is only a weak negative correlation
    between the presence of immigrants in a
    local labor market and the earnings of
    natives in that labor market, immigration
    may have been partly responsible for the
    decline in the earnings of unskilled native
    workers that occurred during the
    1980s; the new immigration may have an
    adverse fiscal impact because recent
    waves participate in welfare programs
    more intensively than earlier waves; immigration
    policy matters, so that host
    countries which filter applicants in terms
    of observable skills “attract” immigrants
    who are more skilled, have higher earnings,
    and are less likely to participate in
    public assistance programs; and, finally,
    there exists a strong correlation between
    the skills of immigrants and the skills of
    second-generation Americans, so that
    the huge skill differentials observed
    among today’s foreign-born groups become
    tomorrow’s differences among
    American-born ethnic groups

    In other words, high levels of unskilled immigration have numerous problems, such as lower wages for low-skilled native workers, and fiscal problems for governments. Of course, this is a complex set of issues, and a single paragraph or article does not do justice to the issue’s complexities.

    1. craazyboy

      I always just watch Martin Scorsese’s “Gangs of New York” whenever I want to see how it works.

    2. Yves Smith Post author

      The H1-B visa regime bears NO resemblance to what Ghosh is talking about, and you are straw-manning her AND thread-jacking to bring it up.

      H1-B visas are not migration. Did you utterly miss what the article was about? They are a short-term guest worker program which allows the US firm to exploit the workers they’ve brought over.

      I’ve repeatedly criticized H1B vias. They are designed to give employers a huge advantage over the workers they bring in.

      Skilled migrants who do not come in under regimes that give employers artificial power over them virtually without exception take jobs at lower, typically much lower, skill levels than they would work at in their home country. Their credentials are assumed to be worse even when they aren’t and their lack of perfect fluency hurts them in the job market too. I can attest to that as an English speaker with Harvard degrees moving to Oz. Even with perfect language fluency and internationally recognized degrees, I would have had to take a step down because I didn’t have deep enough contacts even after building up a big Rolodex before I went over.

      And that’s before you get to prejudice.

      1. andyb

        Yves: the majority of the anti-immigrant voices in this country are less upset about the high skilled ones and more against the lesser skilled who have undermined wages and contributed to the poverty of low skilled Americans, primarily Black. But the biggest antipathy is the importation of low skilled immigrants who are culturally opposite American Judeo-Christian values and laws and who cannot really assimilate.

        Europe is discovering this the hard way.

      2. io

        They were meant (supposedly) as short term worker surplus programs, but most end up with the green card. In any event, many of these visas are just rolled over from period to period. There are many loop holes.

  2. Thomas Williams

    You’re also glossing over displacement of skilled native workers. Using H1-B’s to take away skilled positions in order to drive down wages discourages native workers from gaining the skills necessary to compete. This sets up the vicious cycle of being unable to fill positions with skilled native workers, leading to importing even more foreign workers. All at a time of high local unemployment.

    Yves, I’ve been a follower of yours for years but this has been a persistent blind spot of yours. If you were out here with the working class you’d see it every day.

    1. Vatch

      Yes, at 10:23 AM I commented on the author’s use of old Borjas articles written before the huge numbers of H-1B and L-1 visas had been issued. And as Gaius Gracchus points out, in recent years Borjas has modified some of his views on various aspects of this. As the data and the events change, one’s opinions sometimes must change, too.

      But even in the old articles, Borjas points out the harmful effects of massive levels of unskilled immigration. Since those articles were written, we’ve seen similar harm from mass immigration of stilled workers.

  3. dk

    But it does not acknowledge a big background problem: weak economic conditions and lousy employment levels in Europe even before the influx took place. That hurts immigrants of all types, but low skilled ones most of all.

    Well yeah… the real problem in Europe (as in the US) is a larger economic dysfunction, in which skewed wages and poor circulation of value are major factors. And some of that poor circulation is related to spending on the military actions which are driving the refugees out of their native lands.

    I think the fallacy of the growth paradigm should also be considered. As mentioned in the recent Dean Baker Exposes How CBO Cooks Inflation Forecasts to Promote Deficit Scaremongering article, economists and administrative planners regularly (mis)apply constant values to calculate impossible extrapolations of future growth. A forecast of benefits from immigrants is incomplete without incorporating factors for the target economy’s capacity for growth.

    Immigrant influx can benefit a healthy economy that is not inhibited by capacity and systemic issues, but that is not the case for most developed economies today.

    1. MyLessThanPrimeBeef

      When Hideyoshi invaded Korea, on his way to his eventually unfulfilled dream of conquering Ming China, and it was a bloody invasion, he took back a lot of Korean potters.

      And, boy, did those skilled Korean potters contribute to an economy with capacity to grow.

      Do we then go capture/kidnappe skilled foreigners?

      Is it ‘It’s the economy stupid’ or is it ‘It’s the people in an economy, stupid?”

      Who cares about GDP, if the GDP capita is flat and the GDP not equitably distributed?

      Is it just a mathematical number or do we ask ‘are these migrants here voluntarily, or because their homes have been destroyed?’ ‘Are we brain draining their home country, even if that country is at peace, not under attack by some aggressor?’

      Do we just look at what is the increase in our GDP? Is that all there is to it? Ours. Not theirs. GDP and not the human story?

      1. JTMcPhee

        “capture/kidnap skilled foreigners”? How about all those German Nazis who “contributed” to the Rocket Scientist Dark Pool of Talent, Werner von Braun and the rest? And all the skilled Nazi and Japanese and “other” SS/Stasi and Vopo types who happily joined in with the CIA and other sneaky-Peteries in the game change after WW II? A quick retrospective on Operation Paperclip: And of course our Perfect Empire also picked up a whole bunch of Japanese “war criminals” from the Empire of Japan’s Unit 731 bio-war entity, fronted as the “Epidemic Prevention and Water Purification Department” over in China?

        What I love in all this, with all the talk here at NC about the failed nature of “classical and/or neoliberal economics,” and the several strains of response, from scrabbling for a different, “fairer,” more honest, sustainable way to organize, to scrambling for “ten-bagger personal opportunities” in the collapsing rubble, is the chatter about how influx of refugees from human-augmented chaos (or “immigrants,” if one insists) will affect “innovation and productivity growth,” as if the fokked political economies of what used to be “nations” have a prayer of continuing to “grow” and make more jobs for middle and working class people so they can buy the useless sh!tfroth that fills the four-color catalogs from all those “mail order” trading companies that stuffs my snailmailbox with a new installment of Available Debt for the purchase of Crapified Crapola, every effing mail-delivery day?

        C’mon, people! The earth, geopolitically and political-economically speaking, apparently really is flat, or in the process of being flattened, by the people with the brain parasites that enable them to grab all the wealth, loot all the Commons, collect all the Power Chips. This post is just whistling past the graveyard.

  4. Charles 2

    Plenty of Jewish professionals fleeing Germany in the 30s wound up in more modest jobs, like doorman or clerk

    Well, there was a Depression during these times… Once the postwar began, they took off like rockets.

    Speaking about rockets

  5. Mustsign topost

    Marx got it right on mass migration, it is a sign that things are going down the toilet.
    There’s a reason bankers love it, see Michael Hudson’s “Stockholm Syndrome in the Baltics”, GDP grows whenever a new debt peon is created.

  6. Jesper

    The long-term impact of migration on innovation and productivity growth in host countries is a neglected issue in the current debate on refugees.

    In the long term we’re all dead….

    & what is considered long term? I’d say that when migration is being discussed then the neglected issue is the short term – neglected by all except by a few ‘populists’.
    & also, since most politicians and all corporate leaders are all focussed on the short term why is the short term effects not discussed by our ‘enlightened’ ‘elite’?

  7. Monroe Jones

    Re: The long-term impact of migration on innovation and productivity growth in host countries is a neglected issue in the current debate on refugees.#3

  8. Monroe Jones

    Re: The long-term impact of migration on innovation and productivity growth in host countries is a neglected issue in the current debate on refugees

  9. Sluggeaux

    As noted by other commenters, this article is utter hogwash. “Boosting Productivity” is simply neo-liberal code for driving down wages, which from the perspective of a Silicon Valley awash in H1B’s and their un-skilled entourages, has been highly effective. America in particular has been highly successful in promoting and supporting failed states, corrupt semi-feudal oligarchies, and violent, anarchic, “regime change” in order to keep up the flow of refugees. The population of California has grown from what looked to be a stable 19M in 1970 to an estimated 43M today through mass migration.

    As for “Boosting Innovation,” I watched the Vietnamese diaspora after our disastrous tinkering with that beautiful country. During the 1980’s I had numerous interactions with two distinguished gentlemen from Vietnam — as I got to know them, I learned that the man serving noodles from my favorite “roach-coach” was the former president of the Vietnamese National Railways, and that the gentleman collecting urine samples from juvenile probationers was a former Justice of the Vietnamese Supreme Court.

    We are not trying to fill jobs decimated by wars or epidemics — the population of the U.S. and the Planet keep growing at an alarming rate. Wouldn’t most Americans and Europeans be better off promoting economic stability in these migrants’ home societies? Oh, but then those at the top of ours couldn’t profit from their labor…

    1. run75441

      Actually improved throughput is “supposed” to divide the productivity gains amongst Labor and Capital. It did not for some reason and most likely a rigged game. In which case, Labor improves. In all likelihood we need a shorter work week at the same wage.

      The rest of your post, I am not sure what to make of it,.

  10. S M Tenneshaw

    No, mass migration boosts mass unemployment and CEO pay.

    This has been another in the series Simple Answers to Really Easy Questions.

  11. tongorad

    I doubt that those who trumpet immigration as an economic fix-it would have their livelihood undercut by foreign scabs. Funny how that works.

  12. Darthbobber

    They keep it at a very abstract level, which I suspect is necessary in order to gloss a lot of those troublesome details. What is the effect of massive immigration in an environment where there is already a near-permanent buyer’s market for virtually all skill sets of labor power?

    What is the effect of massive unpredictable inflows/outflows of population on planning relating to social expenditures of all sorts, since planning assumes some level of predictability about what populations will be at given times?

    What is the effect of added bread production if there’s already a surplus of unsaleable bread? Duh.

  13. Darthbobber

    I saw a miniature version of some of these things playing out in Wichita and points westward in Ks. in the 80s.

    We had a fairly large resettlement of Vietnamese refugees from the Ft. Chafee, Arkansas processing center, and there had clearly been some level of coordination with the meatpacking firms. When hiring began again at Dold and MBPXL (later Excel) after a deep series of earlier layoffs, it became clear that the ranks would be filled not by experienced workers still around from those layoffs, but by new hires drawn exclusively from the refugees. They were initially hostile to the union (partly because of some confusion between American trade unionism and NLF-sponsored unionism, partly because they’d had some captive audience treatment from “somebody”). One of my better go-betweens was a buddhist priest who had set up a temple in Wichita (he was killed some years later by a homeless dude he had staying at the temple. Still miss him.)

    Enough of the hostility was overcome in the Wichita plants on all sides to continue to maintain some level of solidarity. This was the era of the reorganizations and steep wage cuts throughout the industry that the strike up in Austin was one piece of.

    A few years later, most of the larger Wichita slaughter operations were shut down altogether, except for Dold, as Excel and IBP built new slaughterhouses out in the farm country to the west (near Cimarron and Dodge), so the slaughterhouses could be right up against the giant feedlots. At that time, the Vietnamese had another wave of relocation into self-contained communities in those areas, near the slaughterhouses.

    A side effect of this was the rise of posse commitatus activity among “nativists” out in those counties, and a pattern of harassment of refugees by some of the Anglo and Mexican population.

    A difficult time, as sympathy for the refugees combined with awareness that the way their resettlement was being handled was pretty transparently about using them to the extent possible as a battering ram on behalf of capital.

  14. FedupPleb

    In a mass migration/refugee situation, you will encounter some positive stories, but on the large such things are calamitous over the short, medium and a good way into the long term.

    Mass migration isn’t something which should be seen as an “opportunity”, or “challenge” for anyone or any country. It should be viewed as a symptom, a very advanced stage symptom, of a process of widespread collapse. You can’t “solve” the migration problem in any way, positive or negative, until you address the process of collapse which precipitated it.

  15. Brian McCann

    The trouble is, migrants don’t bring their infrastructure with them, so taxes and other costs go up for everybody else, to deal with the infrastructure deficit. It’s not just about GDP, it’s about quality of life.

  16. Yata

    I’d put it on an equal footing with the institution of daylight savings time for any supposed economic boon.
    What it does work well for is a pass-thru profit for the crappy rentier class. There are enough sectors of our economy that profit more from the churn in our economy than any stable endogenous growth. It’s a sad commentary.

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