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YES! topic 2018

Innovation and Entrepreneurship: Highly-skilled Migrants

by Bastian Krieger, Maikel Pellens, Florence Blandinieres & Markus Trunschke, researchers at ZEW Centre for European Economic Research in Mannheim

Selected by Johann-Philipp-Bronner Schule Wiesloch and Fritz-Erler-Schule Pforzheim I

The current migration crisis is raising public awareness to the importance of population movements. Recent studies show that 3% of the global population does not live in their native countries (see Özden et al., 2011). Population movements have been increasing since the 1960s and are becoming more and more asymmetrical: the majority of current immigration waves focus on a few countries and cities of destination. In particular, the destinations of highly qualified migrants – interesting from an economic point of view – are concentrated on a few English-speaking regions with relatively high incomes (Kerr et al., 2016). The reasons for the migration of highly skilled workers to their destination countries are manifold: On the one hand, the desire to spend one to two semesters in the destination country as an exchange student, or even to gain a foreign degree over an extended period (two to four years). On the other hand, however, political conflicts and economic crises in the country of origin can lead to the emigration of highly qualified people.

Recent studies show that the immigration of highly skilled workers has positive externalities in the countries of destination. The diffusion of knowledge between different countries is fostered by an increasing number of skilled migrants since most of them have an international network. Without this kind of migrant fostered diffusion of knowledge, the dissemination of new knowledge would be much slower. This process is particularly important as countries tend to specialise in different scientific and technological fields, which is why migrants bring country-specific skills and knowledge that are potentially low in the country of destination. Also, workers from different cultural backgrounds solve problems in different ways, which can lead to synergy effects within working groups.

Accordingly, Germany is a compelling case to be investigated. For one thing, Germany is an attractive destination for international students. In particular, the low costs of study in combination with the high quality of teaching, often offered in the English language, explain Germany’s leading position in the internationalisation of science and research. In this context, regulations such as the Bologna Process and programs like the Erasmus program have made it much easier for students to access higher education systems across Europe. However, most international students return to their home countries: Grundel and Peters (2008) estimate that on average 50% of foreign graduates choose to leave Germany within five years after graduating. The fact that Germany bears most of the education costs of these students, but their home countries benefit from them in the long term, is causing increasing “injustice.” In this context, there is the potential to introduce policy measures (at a federal or even EU level) that limit this “unfair” brain drain and skilled labour immigration.

Further EU action is helping more and more highly skilled workers to migrate to EU countries. With European membership alone, EU countries are already opening their labour markets to highly skilled migrants. Recently, further agreements have been made to simplify the mobility of skilled migrants within EU countries, even though the migrants themselves are not initially from any EU country. Similar to the Green Card in the US, the EU Blue Card offers highly qualified workers from non-EU countries the opportunity and the right to stay and work in the European Union.   Also, firms, in particular, large and multinational companies, are exacerbating the emigration of highly skilled workers by offering them temporary stays in individual parts of the company abroad. As a result, multinational companies are essential determinants of international highly qualified migration, especially about the internationalisation of research and development activities. Furthermore, locations of high technology companies are not distributed homogeneously in one country. They tend to settle around large cities, which are an attractive working and living environment for young talented people. Among other things, the imbalance between skilled workers migration is also felt within Germany.Some regions are more prosperous and economically more dynamic and therefore more attractive to highly skilled workers. In some sectors, regions are actively competing for the most skilled workforce, thus resulting in a shortage of those in less attractive regions. Even highly skilled migrants are more likely to settle in more prosperous regions with a more dynamic labour market. Nevertheless, they could also be an external offer of the highly qualified workforce to cope with the shortage in other regions. Here is the question of a suitable political implementation.

In particular, since the refugee crisis has brought many qualified people to Germany, the capacity of Germany in general to include more migrants, however, is questioned.  The ways of approaching or communicating a problem differ across countries and cultures. Sharing a common cultural background and language makes it easier to integrate into a new country or work environment. Despite this negative influence, different studies suggest that cultural differences may explain why foreign migrants have a higher tendency to start their own business in their destination country¹. Saxenian (1999) shows that a quarter of Silicon Valley companies were owned by Chinese or Indian business leaders between the 1980s and 1990s. Wadhwa et al. (2007) found that 25% of high technology companies with more than $ 1 million in sales in 2006 were founded by immigrants.   Anderson and Platzner (2006) confirmed the importance of immigrants in founding innovative companies, as they represent 25% of the founders of US venture capital-backed companies at the time. These figures suggest that migrants have contributed to the “founding culture” of the US, reflected in the high number of startups and migrants in the US. The orientation of migrants towards entrepreneurship is enhanced by the support of the diaspora, which is already active in the host country (OECD, 2010).    Simplifying the creation of foreign companies should, therefore, ensure the emergence of profitable and innovative companies that match the founders’ particular country-specific capabilities. This hypothesis is becoming even more critical as migrants from non-EU member states find it difficult to enter an existing business due to the lack of equivalence of their educational background.

The economic effects of migration on the national and regional workforce, as well as the opportunities and costs of successfully integrating people from different backgrounds, leads to a multitude of challenging political issues. Some of them are:    How can the harmful effects of skilled labour migration be reduced at EU level? Are the current measures combating this “unfair” competition? What other dimensions need to be considered to address the problem adequately?    How can the recognition of foreign qualifications be simplified? Are measures such as the Bologna Agreement an excellent example of standardisation? Can foreign skills substitute or complement local qualifications?    How can the integration of foreign highly skilled migrants be simplified? Does an employee prefer such a way?

i) How can a government motivate companies to hire foreign highly skilled workers,

ii) combat discrimination and

iii) increase the chances of keeping highly skilled migrants in the country? What compromises do employers have to make? What kind of company is more inclined to recruit highly skilled migrants?

Should the path of becoming an entrepreneur be favoured? What are the advantages and disadvantages compared to being an employee? What are the arguments that support the idea that skilled foreign migrants tend to start a business?   Can regions currently experiencing a shortage of (skilled) workers benefit from the immigration of highly qualified workers? What makes the integration of highly skilled migrants in these regions easier or harder? What can regional governments do?