The effect of Migration on Innovation

How does migration affect innovation?

The reality of the contribution of migrants is widely overlooked. With all the talk in the media about how migrants impact on country resources, we investigate the concept that migration is a stimulus for economic prosperity, specifically in relation to innovation, within Europe. We take a closer look at the two European countries that have the highest migrant populations, to try and find answers.

By Richard Forsyth

Some important facts about the positive aspects of immigration are being missed by the mainstream media. It’s time we took a step back to inspect how immigration plays a key role in economies. In the context of nurturing innovation, immigration is being identified as a driving force. It’s a complex thing to measure but there are ways to correlate data and find indicators.

First, let’s get a feel for the numbers and look at the influx of migrants coming into Europe, which countries have the most migrants and where migrants are moving from.

According to a report released in March 2017 by Eurostat, in 2015, a total of 4.7 million people migrated to one of the EU-28 Member States. By 1 January 2016, there were 35.1 million people residing in an EU Member State born outside the EU, 20.7 million citizens of non-member countries living in the EU and 16 million people living in one of the EU Member States with citizenship of another EU Member State.

Germany took in the highest number of immigrants, followed by the UK, then Italy, Spain and France, in that order.

The German acid-test

As Germany has arguably the most open borders, let’s start by taking a closer look at what that means to innovation for the country.

A recent study entitled Foreign Human Capital in Germany: Considering the Benefits of Workers from other Countries, was published in May this year, undertaken by the company, Movinga.

Finn Hänsel, the MD of Movinga explained: “There are reasons to believe that foreign labour can boost the economy rather than harm it.”

Research was conducted into each of the 16 federal states. The number of firms receiving venture capital, the number of patent applications, the unemployment rate, and the percentage of the state that were born in another country were all examined. The findings show that German states with a higher percentage of foreign-born citizens see higher levels of innovation. They also illustrate that attracting more people from other countries does not mean higher unemployment.

In order to analyse the possible benefits of foreign human capital, the diagrams below compare the key indicators on innovation and economic prosperity (firms accepting venture capital, patent applications, unemployment) with the percentage of the population that are born in another country. All data used for this report was provided by The Organisation for Economic Co-operation and Development (OECD) and the German Federal Statistical Office (Destatis).

With 81.4 million citizens, Germany is Europe’s largest country by population. It is also the nation with the largest foreign-born population in Europe, with more than 7.8 million (9.6%) originating from another country. However, this diversity is not evenly spread across Germany’s 16 federal states: five states have more than 10% of citizens who are foreign-born, whereas five states have a foreign-born population of less than 3%. This disparity is illustrated in Figure 1.

Figure 2 shows that the city states such as Berlin and Hamburg that have a higher percentage of foreign-born citizens, are also home to a higher number of firms receiving venture capital.

Similarly, Figure 3 shows that the two federal states with the most patent applications (Bayern and Baden-Württemberg) are also diverse demographically, with around 10% of their populations being foreign-born.

Figures 1, 2 and 3 also convey that the federal states with fewer firms receiving venture capital and lower numbers of patent applications, like Sachsen-Anhalt and MecklenburgVorpommern, have smaller foreign-born populations.

These findings illustrate that people born in other countries are of great economic value, and that an attitude of openness to foreign-born citizens is important, in order to support innovation, research, development and growth. The relative weakness of the federal states with fewer numbers of people born in other countries suggests that they could boost innovation and their general economic performance through attracting more talent born outside Germany.

Figure 1 - Distribution of foreign-born workers in Germany Figure 2 - Number of firms receiving venture capital

Figure 3

Will Brexit mean brain-drain?

The UK is poised to leave the EU with the so-called Brexit, a decision which came from the 2016 referendum.

The country has the second biggest immigrant population in the EU, after Germany. It makes up a large part of the labour force, 17 percent in total – that amounts to 5.4 million non-UK born workers out of 31.6 million working people.

When looking at how leaving the EU might specifically, directly affect innovation (leaving out the issue of missing significant European funding) the clearest alarms have been in terms of less collaborative research with foreign scientists and fewer international university students basing themselves in the UK and working on scientific projects.

It is expected that a segment of non-native UK scientists and research students may leave the UK due to Brexit – in what is termed a ‘brain-drain’, in context to migration of talent away from the country. Whilst there are likely assurances for citizenship for those already in the UK, Brexit has the potential to push UK science outside of collaborations between EU countries and with barriers in place to further recruitment and movement, it may become less attractive a base.

Leaving innovation to the side for a moment and looking at the overall economy, if they were not there, there would be a noticeable dip in economic activity. For an idea of the financial impact, consider new research conducted for Universities UK by Oxford Economics, which revealed from an analysis of 2014-15, that international students and their visitors had a knock-on impact of £25.8 billion in gross output in the UK. As well as tuition fees, foreign students spend their money off-campus on goods and services.

Beyond their spending and their achievements in research, such skilled citizens who have migrated to the UK, provide technical skills needed in business and importantly, they launch and influence startups.

Innovators, inventors and entrepreneurs have been noticeable in the migrant populations in the UK.

CReAM – Centre for Research & Analysis of Migration published a fact sheet called What do we know about Migration – Informing the debate.

The document highlighted that ‘immigration improves innovation, trade and entrepreneurship. In most OECD countries, immigrants are more likely than natives to start new businesses. In the UK, immigrants are more likely to be selfemployed.’

This was backed up by The 2015 Global Entrepreneurship Monitor (GEM) which analysed start-up activity in the UK and found that immigrants were three times more likely to be entrepreneurial than people born in Britain. It revealed that over half a million people from 155 countries have settled in the UK and launched businesses – some with more than one business.

It’s clear in this case, that when it comes to entrepreneurship, migrants are statistically braver than natives at starting new businesses. For innovation to flourish you need the dual strengths of research and entrepreneurship and those aspects, it’s been proved, have been strong when immigration has been accepted and encouraged.

Is freedom of movement THAT Important?

A study in the Harvard Business Review, titled Why Mass Migration Is Good For Long Term Economic Growth by Vincenzo Bove and Leandro Elia looked at countries around the world for the effects that came from migration. They realised that the poorer the target country the more potential for economic growth… ‘Richer countries are closer to the technological frontier than poorer countries, so the adoption of new technologies should be faster in developing economies, and the labour force’s skills and knowledge should increase at a faster rate. In other words, the more developed the destination country is, the less economic impact we are likely to see from migration…’ However, they continue, ‘…Overall our evidence suggests that immigration-fuelled diversity is good for economic growth. The main recommendation that political leaders and organisational practitioners can take away from [our] findings is to increase openness to workers from as many origins as possible, to reap the large benefits of having an increased range of skills, ideas, and innovative solutions.’

For EU countries – freedom of movement is a fundamental underpinning strategy of growth. The idea of easing the flow of skilled migrants through Europe and employing them as professionals has long been perceived as a method of fostering innovation.

Whether the EU grows stronger or fractures further, hinges to some degree, on public perceptions of how immigration is affecting their country. Whilst it is indeed a complex issue, to reverse the flows of people, to discourage collaboration, this will likely have negative effects on innovation and growth.

As a final footnote, consider this, that according to an OECD report published in 2014, migrants accounted for a 70% increase in the workforce since 2004 in Europe – addressing labour market imbalances. This alone suggests there is a challenge to really be worried about, if multiple borders become prohibitive to foreigners and migration becomes sluggish, as industry could face unbridgeable labour gaps from having to rely on native recruitment alone.

Research, innovation, growth and simply having the manpower, these have long been the pillars of economic progress. Diminish your human assets and you will inevitably see a decline in all these drivers.