Does Cultural Diversity of Migrant Employees AffectInnovation? 1

Increasing international labor migration has important effects on the workforcecomposition of firms in all migrant-receiving countries. The consequences ofthese changes for firm performance have attracted growing attention in recentyears. In this paper, we focus explicitly on the impact of cultural diversityamong migrant employees on the innovativeness of firms. We briefly synthesizeempirical evidence from a range of contexts across Europe, North America, andNew Zealand. We then utilize two unique and harmonized linked employer–employeedatasets to provide comparative microeconometric evidence for Germany and theNetherlands. Our panel datasets contain detailed information on the generationof new products and services, determinants of innovation success, and thecomposition of employment in establishments of firms over the period 1999 to2006. We find that innovation in both countries is predominantly determined byestablishment size and industry. Moreover, obstacles encountered andorganizational changes faced by firms drive innovation too. With respect to thecomposition of employment, the presence of high-skilled staff is most important.Cultural diversity of employees has a positive partial correlation with productinnovation. The size and statistical significance of this effect depends on theeconometric model specification and the country considered. We conclude from theliterature synthesis and the new comparative evidence that cultural diversity ofemployees can make a positive, but modest and context dependent, contribution toinnovation.