Does migration policy push innovation? Yes, it does!

Highly-skilled migrants seem the solution for European needs in terms not only of growth but also for innovation.

Does research provide evidence for this general impression?

Measuring innovation is very complex. Two proxies are used to measure innovation in production: the registration of patents; and total factor productivity.

The registration of a patent at the national or European level is done only if there is the intention of implementing the innovation, because it is very costly: thus the number and the citation of patents are used to capture the innovative behavior of firms.

Total Factor Productivity captures, instead, the unexplained effect on growth in production, which cannot be attributed to the increases in production inputs, and that capture the final effect of innovation.

The research was carried out along two broad lines:

  • A first strand of research focuses upon the production of patents directly by foreigners. Thus it looks at the effect of more open legislation that favour the entrance of foreign migrants: e.g.  in the USA  H-1B visa policy, which facilitated  the entrance of highly-skilled foreigners with higher education in Mathematics and Sciences and  the variation in the number of patents registered by foreign nationals after the introduction of the norm.

        The conclusion is that the more open but specific  the visa policy is on highly skilled  in Science and Technology, the more patents will be registered by foreigners.

This strand of research is in favour of a more open highly-skilled migration policy. The result is, however, conditioned for the USA, which is a special case. The USA is able, in fact, to attract highly-skilled workers in  large numbers for the  wage premium offered , the high probability of highly-skilled jobs, as well as the language, English, which reduces the initial cost of migration, not to mention the open nature of American society. This also increases the return of a move, which frequently has started before in the education phase.

Thus the results related to the US should be taken cautiously in Europe because they are limited to a very favorable context where the internal mobility of firms is impressively large.

  • The second and broader direction of the research is, instead, upon the effect of migrant workers in the production at regional, sector or firm level on innovation measured both by patents and by TFP. The evidence in this strand of research is much broader with many country cases and international studies.

Highly-skilled migrants have a positive effect on the production or implementation of innovation. The analyses at local level show that diversity in national origin of workers leads to a positive impact. This though disappears at sector or frequently at firm level.

The diversity measure is very challenging because it is not only the total amount of migrants, but also its composition that is relevant for innovation.

If, on the one hand, the diversity index comes from the idea that there are complementary skills among migrants from different national backgrounds, the lack of strong evidence at firm and sector levels suggests a likely penetration of migrants of different origins in different sectors. These complement each other in the innovation process. More research in this field should be carried out to direct migration policy properly.

Any migration policy which favours the entrance of foreign citizens is thus beneficial, in general, for innovation at territorial, sector and firm level. The results on the beneficial effects of diversity are not yet universal and there is not enough evidence to justify changing the point system, which concentrates on the quality of the migrant- for  a quota system which selects by nationality.

The general conclusion is that inflows of highly-educated migrants favour innovation but also the variety of origin of the migrants can play a positive role at least at the regional level. Thus a more open migration policy for the highly-skilled will prove positive for innovation.

 

For more, see the MPC Policy Brief Innovation and Human Capital: the Role of Migration (Venturini A., 2013)

By Alessandra Venturini, Deputy Director of the Migration Policy Centre and Professor of Political Economy at the University of Turin

The views expressed by the author are not necessarily the views of the Migration Policy Centre


Are immigrants a burden for the state budget?

There is a long-standing debate on the fiscal impacts of immigration and its effects on the welfare state. Proponents of relatively uncontrolled migration suggest that migration can help to resolve recent and future fiscal problems; migration is thus presented as a critical factor in the survival of the welfare system. Opponents claim that immigration breaks  the very logic of the welfare system as a closed system with an important role of membership: they would argue for an exclusionary stance towards immigrants. In public debates immigrants are commonly blamed for burdening state and local budgets and for negatively affecting welfare payments and other services enjoyed by non-migrants.

Most empirical studies available conclude that immigrants use social welfare more than natives. Most of those differences, however, disappear when accounting for the structural characteristics of immigrants, and particularly for their labor market status. The overall net fiscal position of immigrants depends to some extent on their socio-demographic characteristics (age, skills, marital status, family status etc.). However, their status is also strongly system dependent: in countries with more flexible labor markets and relatively less generous welfare systems immigration affects the welfare system in a positive way. Empirical evidence proves that the problem often lies not in immigration itself but rather in the construction of the welfare system. Sometimes welfare systems are responsible for weak incentives to be economically active and for the creation of entry barriers into the labor market for immigrants through upward pressure on minimum wages. The structure of immigration and migration strategies influence the net fiscal position of immigrants (and at the same time they are shaped by the structure of the welfare system). Generally, the net fiscal impacts of immigration are small (+/- 1% of GDP) and they cannot explain the very heated  public debate on that issue.

A review of the theoretical and empirical literature concerning the effects of immigration on welfare reveals a number of issues that are important in the policy–making context. First, many European countries will need more immigrants to sustain their welfare systems. Second, immigration policies need to be more selective (and not only with respect to age and skills) if countries want to maximize the positive impact of any inflow. Third, steps for legalization are critically important in improving the net fiscal position of immigrants. Fourth, labor market absorption remains one of the most important factors shaping both immigrants’ well-being as well as their net fiscal contributions. Last but not least, it is necessary to improve the efficiency of welfare policies, which often tend to put immigrants in the “poverty trap” rather than assimilating them out of the welfare.

This blog post is based on the new EUI Working paper “Are immigrants a burden for the state budget?” (Pawel Kaczmarczyk).

Pawel Kaczmarczyk, Former Robert Schuman Fellow at the Migration Policy Centre and Vice director of the Centre of Migration Research at the University of Warsaw

The views expressed by the author are not necessarily the views of the Migration Policy Centre

Selected readings:

Boeri, Tito. 2010. Immigration to the Land of Redistribution. Economica 77(308): 651-687.

Borjas, George J. 1995. The Economic Benefits from Immigration.  Journal of Economic Perspectives 9(2): 3–22.

Boeri, Tito, Hanson, Gordon and Barry McCormick (eds.). 2002. Immigration Policy and the Welfare System. Oxford: Oxford University Press.

Collado, Dolores, Iturbe-Ormaetxe, Inigo, and Guadelupe Valera. 2004. Quantifying the Impact of Immigration on the Spanish Welfare State. International Tax and Public Finance 11: 335-353.

Dustmann, Christian, Frattini, Tommaso and Caroline Halls. 2010. Assessing the Fiscal Costs and Benefits of A8 Migration to the UK. Fiscal Studies 31(1): 1-41.

Hansen, Jorgen and Magnus Lofstrom. 2003. Immigrant Assimilation and Welfare Participation: Do Immigrants Assimilate Into or Out of Welfare? The Journal of Human Resources 38(1): 74-98.

Nannestad, Peter. 2007. Immigration and Welfare States: A Survey of 15 Years of Research. European Journal of Political Economy 23(2): 512-532.

OECD. 2013. The fiscal impact of immigration in OECD countries. In: OECD. International Migration Outlook. Paris: OECD.