Foreign Workers Are Associated with Innovation, But Why? International Networks as a Mechanism

What is it about?

While there is a wealth of empirical research examining the potential relations and effects of foreign workers, immigration and cultural diversity on wages, employment, economic growth, and—in recent years—innovation, very little of this research has provided a convincing empirical demonstration of the mechanisms through which foreign workers would affect innovation. Most accounts hypothesize that foreign workers provide a different perspective that contributes to a diversity of ideas in the firm, while some also add the idea that foreign workers might help a firm build international networks. Nonetheless, these mechanisms have for the most part remained entirely theoretical, with few attempts being made at uncovering the intermediary relationships. This article contributes to filling this gap by focusing on the second of these mechanisms, asking whether firms that employ foreign workers also have broader international networks and whether this may, in turn, promote innovation through access to new knowledge. This article builds on survey data from approximately 500 firms in Norway, with more than ten employees, covering all sectors and regions. We find evidence that firms with highly educated foreign workers collaborate more frequently with international partners and that there is a positive relation between having a variety of international partners and the probability of product innovation and new-to-market product innovation.

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Why is it important?

he relationship between foreign workers and innovation has been frequently discussed in the literature, but few contributions have so far looked in detail at the mechanisms involved in this relationship. While most previous research has focused on the diversity of ideas and perspectives that foreign workers might bring, this analysis provides tentative evidence on another potential mechanism: firms with foreign workers engage in a wider set of international relationships, which is in turn associated with higher levels of innovation. However, this association only emerges for certain types of foreign workers and for certain types of firms. Specifically, firms with highly educated foreign workers have broader international networks, while those with only less- or medium-educated foreign workers have no significantly different networks than those without any foreign workers. Considering that foreign workers are often overqualified for their positions (Chiswick and Miller 2008; Nielsen 2011), this may suggest that medium- and less-educated foreign workers could contribute more if they are involved to a greater extent in their firms’ international networking processes. Furthermore, the association with foreign workers holds only for firms without operations abroad, while those with employees abroad gain no additional benefit from employing foreign workers in their international networking. Hence, foreign workers are particularly important for firms that operate only in one country and lack other channels through which they can connect to international partners. Highly educated foreign workers are frequently employed by multinational enterprises, but they may be even more important for the majority of firms that are not multinational. The results further indicate that firms that collaborate with a broader set of international partners are more likely to introduce product innovation, new-to-market product innovation, and new-to-industry process innovation. This suggests that the presence of highly educated foreign workers might be related to innovation output through the relationship of international collaboration with these variables. The main contribution of this article is hence in empirically studying one of the mechanisms by which foreign workers can influence innovation at the firm level. This is a necessary step in going beyond establishing an empirical association between foreign workers and innovation, which has been done by numerous recent contributions, and toward unbundling the various mechanisms that make up a potential causal chain accounting for this relationship.