Skilled immigration, task allocation and the innovation of firms

Immigration is a hotly debated topic in several destination countries (Rebelo et al. 2020). Policy and academic discussions have focused on different types of immigration, depending on the host country being analysed. In the US and in countries that adopt skills points systems, the literature on skilled migration is voluminous, while in Europe the discussion has centred almost exclusively on low-skilled migrants and political refugees. Yet, Europe is increasingly receiving large flows of skilled migrants, and the policy debate has evolved to attract tertiary educated immigrants (EU Blue Card Directive 2021/1883). For example, in France the share of tertiary educated immigrants is 23%, having increased by 11 percentage points between 1995 and 2010.

Recent contributions focus on the US, and show that skilled immigration has greatly contributed to innovation and patenting activity. Burchardi et al. (2020) show that immigration to the US from 1965 to 2010 led to an additional 8% increase in patents per capita. Lincoln and Kerr (2010) examined how H-1B visa entries between 1995 and 2008 affected US patenting, showing that higher H-1B admissions boosted US innovation through the direct contributions of immigrants, without crowding out native contributions. Hunt and Gauthier-Loiselle (2010) show that in the US, the share of degrees in science, technology, engineering, or mathematics (STEM) tends to be higher among immigrants than among natives, and college-educated immigrants have a positive impact on the number of patents per capita. Grigsby et al. (2017) take a historical perspective to the migration-innovation nexus and show that immigrant inventors were of central importance to US innovation during the 19th and 20th centuries.

Europe has been largely overlooked by this literature, notwithstanding recent anecdotal evidence of the important role played by immigrants in innovation in European countries. For example, the BioNTech founder Uğur Şahin, who developed the Pfizer Covid vaccine, is a Turkish-born scientist who lives and works in Germany. Similarly, a highly cited patent by the company Alcatel, which contributed to the improvement in the speed/cost of fibre-optic cable communication, was filed by a team of French and immigrant inventors.

In a recent paper (Mayda at al. 2022), we provide firm-level evidence on the link between immigration and innovation in the European context. We use information on the universe of French manufacturing firms spanning the period 1995–2010, and investigate the impact of skilled migration on the patenting activity of French districts and firms. Figure 1 summarises the main result of the paper. It shows that from 1995 to 2010, a period when the share of skilled migrants in the French population increased, the number of patents per French manufacturing firm went up as well (from 11 to 42), together with the number of foreign inventors per patent, while the average patenting team size remained stable (so that the share of foreign inventors in research teams increased from less than 1% to almost 5%). While this figure provides suggestive evidence of a positive correlation between the increasing share of immigrant inventors among French patenting teams and the innovation activity of firms, in Mayda et al. (2022) we estimate the causal effect of skilled migration on innovation.

Figure 1 More diversified and productive research teams in the manufacturing sector

We find that the arrival of skilled migrants in a French district in the period 1995–2010 significantly raised the number of patents. Our results hold when we look at the number of patents at the firm level. We also investigate the channel through which skilled immigrants are likely to affect the patenting activity of firms. We combine the insight from the existing literature – showing that immigrants tend to specialise in different tasks than similarly skilled natives (Peri and Sparber 2009) – with the analysis of the effect of immigration on innovation. We show that, given different patterns of comparative advantage of immigrant and native workers across different tasks, an inflow of skilled migrants leads to the reallocation of workers across tasks, and increases the productivity of firms, specifically in terms of innovation activities. Through this channel, greater innovation is the result of productivity gains from specialisation.

We show that the pro-innovation impact of skilled immigration is driven by a within-firm reorganisation of tasks: while skilled native workers specialise in communication-intensive, managerial tasks, skilled immigrant workers specialise in technical, research-intensive tasks. We find that a one percentage point increase in the share of skilled immigrants in the local labour market induces French firms to increase the number of immigrant workers in technology-intensive occupations by 6%, and to allocate relatively more skilled native workers to communication-intensive occupations. Accordingly, the immigrant-native ratio increases in technical occupations and decreases in communication-intensive occupations. Each group of workers is reallocated towards the tasks for which they have a comparative advantage, which implies a higher efficiency of the innovation process driven by specialisation. As a result of this improved task reallocation, firms become more productive in terms of innovation: a one percentage point increase in the share of skilled immigrant workers in the average local labour market leads to an average increase in patents per firm of 5.2%, or 0.41 patents for the average firm (Figure 2).

Figure 2 Patenting activity is positively influenced by the arrival of skilled immigrants

The reallocation of tasks at the firm level is evident when we look at the composition of the research teams involved in patent production. We show a positive and significant effect of exogenous inflows of skilled immigrants on the share of foreign inventors. A 10% increase in the share of skilled immigrant workers in the average district (i.e. local labour market with an average endowment of skilled immigrant workers) increases the share of foreign inventors in the firm’s research team by 0.34 to 0.62 percentage points.

The structure of task-specific comparative advantage at the core of our paper is likely driven by the lower language abilities of skilled migrants (compared to natives) or by other (institutional or de facto) constraints they face. Indeed, it may be extremely hard for foreign-born workers to access specific managerial communication-intensive occupations. The case of France is particularly interesting from this point of view, as the education system (through the Grandes Ecoles framework) is set up in such a way that outsiders (both French workers who did not attend the Grandes Ecoles, and foreign workers who studied abroad) are less likely to have access, in practice, to high-hierarchy positions (i.e. cadres) within firms.

The patenting effect of skilled migration is not restricted to the French case. Recent evidence suggests that our findings might extend to other destination countries in Europe. A recent report by the World Bank on skilled migration to Europe shows that “the number of high-skilled migrants in the EU, defined as migrants with some tertiary education, more than tripled over the period 2004–18, increasing from about 4 million to 13 million” (World Bank 2022). The same report also shows that the occupation composition of skilled migrants to Europe is quite different from that of skilled natives: as in the case of France, skilled migrants to European countries are more likely to have jobs requiring technical and quantitative skills (i.e. ICT positions, software developers, engineers, medical doctors) while skilled natives tend to be relatively more concentrated in communication-intensive occupations (such as sales, legal and financial professions, teaching, and administrative work). This evidence suggests that France is not an isolated case within Europe in terms of the innovation-migration nexus and the task-specialisation channel.

More research is needed on the economic impact of skilled migration to Europe. This is increasingly important because skilled migration is not only likely to be beneficial in economic terms, it appears to be politically feasible too. Public opinion is by and large in favour of skilled migration. For example, a 2018 survey of 12 (mostly European) countries by the Pew Research Center shows that in all but two countries (Italy and Israel), more than half of those interviewed would encourage high-skilled individuals to immigrate and work in their countries (those interviewed were representative of their country’s entire population; Connor and Ruiz 2019). In France, 68% of the sample is supportive of skilled migration, against 31% opposed.

To conclude, skilled migration represents an opportunity for policymakers in Europe to make progress in liberalising labour markets without provoking a political backlash.