I’ve long been of the belief that migration is crucial to the innovative output of a nation.  In many ways, this should be no surprise as migrants are traditionally very highly skilled.  A recent report from McKinsey Global Institute highlighted this point quite clearly. It revealed that 35% of the 247 million or so people who live outside their country of birth are highly skilled migrants with at least a tertiary education. What’s more, these migrants are typically significantly more qualified than the native population.

A recent study from the University of California San Diego School of Global Policy and Strategy goes further still and directly measures the impact of migrants on innovation.  It shows that bringing in talent from abroad not only helps with the birth of new products and phasing out of older ones, but also has an impact on corporate profits and consumer wellbeing.

“We found companies with higher rates of H-1B workers increased product reallocation–the ability for companies to create new products and replace outdated ones, which in turn, grows revenue,” the authors say. “This discourse could have far reaching implications for U.S. policy, the profitability of firms, the welfare of workers, and the potential for innovation in the economy as a whole.”

The value of immigrants

The research saw H-1B data contained in the Labor Condition Applications, which companies have to file each time they employ an H-1B employee, merged with company-level data compiled from the Nielson Retail Scanner that provides various information on products.  This new dataset was compiled between 2006 and 2015 and allowed the researchers to analyze the impact foreign workers had on the productivity of their employer.

They believe that their work chimes with previous studies that have drawn similar conclusions having examined the link between immigration flows and patent production.  They believe that the implications are clear and should directly impact US immigration policies.

“There has been a lot of work by economists on the impacts of the H-1B program mostly focused on the wages and employment of native born workers, but little is known about how immigration affects production at the firm level,” they say. “We find that hiring more immigrant workers is associated with firms introducing new products on the market.”

So why are migrants beneficial?  The authors suggest two possible reasons.  Firstly, as mentioned before, they tend to be highly skilled, which coupled with a fresh perspective can give them unique insights into age old problems.  Secondly, they can often be recruited at a lower cost, thus allowing more of them to be recruited, so the weight of numbers can lead to new innovations.

The authors believe that their work is crucial as they show that migration not only leads to new products and higher profitability for companies, but also benefits to consumers more broadly, suggesting a strong benefit to society in the whole.

“We demonstrate that changes in a firm’s production portfolio is connected to both high-skilled immigration and profitability,” they conclude. “In addition, changes in consumer goods products affects the welfare of U.S. consumers.”