Migrant entrepreneurs: fuzzy numbers and real impacts

March 24, 2014

The Centre for Entrepreneurs think tank recently made waves with this report on migrant entrepreneurship. The headlines are striking: 450,000 migrants set up 1 in 7 UK companies, at almost twice the rate of the UK population (17% vs 10%).

Here are some reactions. Overall, this is a welcome piece of work. However, I have some reservations about the numbers. And the report – understandably – doesn’t address some of the big issues where we still need answers.

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First, praise where it’s due. This is completely new analysis which reflects serious effort. The actual analysis was done by Duedil, who crunched around 3m raw observations to get these numbers. (At NIESR we’ve been working with similar data: it’s a lot of work.).

The analysis has also shone some much-needed light on the role of migrants in entrepreneurship. As CFE point out, policymakers are only just starting to take this stuff seriously. Canada and Chile already have proper start-up visas. The US seems stuck in endless discussions. The UK is still getting there. And the underlying evidence base is under-developed.

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Second, the data. It’s clear there’s a story here, and this is why the CFE work is welcome. But push a bit and the numbers are less convincing. It’s hard to tell whether the true numbers are higher or lower: the results are fuzzy.

One big issue is that there’s no correction for corporate structure – the raw data is legal entities, not businesses, and the true number of firms could be a lot smaller than the count of corporations. The relative contribution of non-UK entrepreneurs could then be higher or lower than before.

Another is that companies with migrant and UK-born founders are counted as migrant-founded. That makes sense. But without knowing what share of ‘migrant-founded’ companies are co-founded it’s hard to be clear on the true migrant contribution.

A third issue is that the data provides the nationality of company directors, not birth country. As CFE point out, this likely underestimates the count of migrant entrepreneurs (since many won’t take UK citizenship). But since there’s also many more migrants than non-UK nationals in the wider workforce (see here), this likely reduces the share  of migrant entrepreneurship. The report shows that 17% of non-UK nationals set up companies in the UK. Based on LFS figures, for that figure to hold for migrants the data would have to uncover a further 290,000-odd migrant entrepreneurs on top of the 450,000-odd non-UK nationals already identified. I’m not sure if that’s really plausible.

Full disclosure: We’ve asked DueDil for the raw data so we can see how they did the analysis. We’ve also put our questions to them: they haven’t responded yet, but I’ll update this post when they do. 

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More broadly, this is descriptive analysis, which understandably doesn’t try to look at impacts (exploring these is a project in itself). CFE are upfront about this, although they suggest those impacts are likely to be large and positive.

I think there are (at least) four big questions for further research.

1/ What is the relative economic impact of migrant-founded companies versus co-founded and native-founded? Do they tend to do better or worse in terms of sales, productivity, attracting finance or coming up with new ideas?

2/ What explains this? Is it a ‘migrant x-factor’, or something about the company, or industry-level effect, location (say in a city)? Or some combination of these?

3/ What is the additional impact of migrant top team members? There’s no counterfactual here, but one possible workaround is to look at companies where a migrant director joined, and compare the change in their performance against similar companies where this didn’t happen. The data in the CFE report would provide a great basis to do this.

4/ What is the distributional impact of migrant (co)-founded companies? Do new migrant firms tend to complement or displace UK-founded companies?  The evidence suggests that more competition in an industry means some firms innovate out of trouble, while others exit.

Working out who are the winners and losers is politically crucial. As consumers, we may just want the best and cheapest goods and not care who makes them. But government needs to decide if they are interested in competitive markets per se, or the competitive position of UK businesses. Industrial policies often get into trouble for this reason. But the same issues likely apply to immigration policy too.


What have high-skilled migrants ever done for us?

March 2, 2014

(c) 2014 uncovention

I’ve got a new paper out in the IZA Journal of Migration.

It’s about high skilled migrants – by which I mean people with a degree, with specialist skills (e.g. scientists) or with rich experience in (say) entrepreneurship. It’s based on some recent work for the UK Government’s Migration Advisory Committee.

In the UK, immigration is once again a top 3 issue for public opinion, it’s pretty important to gather what evidence we have.

Here’s the abstract:

In recent years, the economics of migration literature has shown a substantial growth in papers exploring host country impacts beyond the labour market. Specifically, researchers have begun to shift their attention from labour market and fiscal changes, towards exploring what we might call ‘the wider effects of migration’ on the production and consumption sides of the economy – and the role of high-skilled migrants in these processes. This paper surveys the emerging ‘wider impacts’ literature, including studies from the US, European and other countries. It sets out some simple, non-technical frameworks, discusses the empirical findings and identifies avenues for future research.

Thanks to the joys of Open Access, you can read the whole thing here. In case you don’t have time, here are some of the main points:

1/ Skilled migrants now comprise around 30% of OECD migrants – that’s 25% more than in 2000/1. And the future trend is upward.

2/ We know quite a lot about immigration’s impact on wages and jobs (positive on the average, but more serious for some low skilled workers). However, we know almost nothing about the wider impacts of immigration – on productivity and its drivers, and on housing or public services – where high-skilled migrants are going to be central.

3/ To get a sense of these impacts, we need to think about immigration in terms of economic growth – that is, as a factor in production and something that shifts the size and composition of local populations.

4/ In theory, these wider impacts are ambiguous. For example, more diverse workforces could generate more new ideas; but diverse teams could have communication problems or lower trust.

5/ In practice, the international evidence suggests that aggregate wider impacts are positive (gains outweigh losses). In places like Silicon Valley, high skill migrants are a driving force in the local economy.

6/ That’s encouraging for pro-migration voices in the UK and elsewhere, but we still need much more evidence. In particular, we need to know more about the winners and losers in these aggregate outcomes.

7/ Ideally, the UK and other countries would develop experimental policies for high-skilled migrants, enableing us to cleanly identify these effects. Turning the Tier 1 entrepreneur route into a proper Startup Visa is one obvious option. Creating a market for wealthy investors via visa auctions is another. Both could allow for evaluation through randomised trials or quasi-experimental approaches. But the current politics of immigration are making this kind of thing increasingly difficult to do.


Do inventors talk to strangers?

January 15, 2014

Not such a productive meeting, (c) wikimedia

I’ve a new working paper out, written with my LSE colleagues Riccardo Crescenzi and Andrés Rodríguez-Pose. It’s available in three flavours, CEPR [£], IZA and SERC.

Here’s the abstract:

This paper investigates how physical, organisational, institutional, cognitive, social, and ethnic proximities between inventors shape their collaboration decisions. Using a new panel of UK inventors and a novel identification strategy, this paper systematically explores the net effects of all these ‘proximities’ on co-patenting. The regression analysis allows us to identify the full effects of each proximity, both on choice of collaborator and on the underlying decision to collaborate. The results show that physical proximity is an important influence on collaboration, but is mediated by organisational and ethnic factors. Over time, physical proximity increases in salience. For multiple inventors, geographic proximity is, however, much less important than organisational, social, and ethnic links. For inventors as a whole, proximities are fundamentally complementary, while for multiple inventors they are substitutes.

In other words, we find that physical proximity is critical to break the ice in a research collaboration; once the relationship has been established, however, other forms of proximity become more important. Crucially, for multiple inventors we find that co-location basically disappears as a driver of collaboration.

Obvious, you might think. But I’d argue that the multiple inventor group finding is pretty counter-intuitive. Our results also imply that the gains from incubators and research labs are strong for young researchers, but may fall off quite quickly. And our numbers chime with the ‘nursery cities’ hypothesis – basically, big cities are better for small young firms than older, larger ones.

The paper’s now with a journal, so fingers crossed. I’ll keep you posted when there’s news.


Agglomeration, clusters and industrial policy

November 25, 2013

Sou Fujimoto, Serpentine Pavilion. (c) Max Nathan 2013

 

 

 

 

 

 

 

I have a new article out in the Oxford Review of Economic Policy, joint with Henry Overman. It’s part of a special issue on ‘Government and Business’, with other contributions by Jonathan Haskel, Stian Westlake, Dieter Helm, Francesca Froy and Phil McCann.

You can see the whole lot here, and (for the moment) PDFs are free.

My piece with Henry is a constructive-critical take on clusters and the urban level of innovation policy. Here’s the abstract:

This paper considers the appropriate spatial scale for industrial policy. Should policy focus on particular places, targeting clusters of firms that are spatially concentrated? Or should it, instead, be ‘space neutral’, refusing to discriminate between different areas unless absolutely necessary? We provide an overview of the literature and identify two waves of literature that argue strongly in favour of a cluster approach. We argue that this approach rests on shaky theoretical and empirical foundations. In contrast, we suggest that more attention should be paid to the appropriate spatial scale for horizontal interventions. What can policy do to make cities work better, in ways that help firms to grow? That is, what is the appropriate role for ‘agglomeration’ rather than ‘cluster’ policy? Finally, we consider the possibility that some horizontal industrial policy objectives may be better served by specifically targeting particular places or from decentralized design or delivery.

Read the whole thing here.


… and we’re live

October 25, 2013

our London launch

We had the London launch of the What Works Centre yesterday. It went very well – full room, sharp discussion, plus strong contributions from LSE’s Director Craig Calhoun, from BIS and DCLG Ministers Michael Fallon and Kris Hopkins and from Joanna Killian from Essex.

We’re off to Manchester in a couple of weeks for a second launch session. Details here.

Now the hard work begins

In the meantime you can catch up on what we’re up to here and here.


What Works

September 11, 2013

As some of you will know, LSE, the Centre for Cities and Arup will be running the new What Works Centre on local economic growth.

The Centre will conduct systematic reviews of UK and international research, ranking the most effective interventions, and will work closely with local government, local enterprise partnerships and other ‘users’ to help develop stronger economic policymaking across the UK. As NICE and the EEF already do, it may eventually commission research too.

The Centre has just begun work – we had a great workshop today with a number of our local partners – and we’ll formally launch later in the Autumn. We’ll be part of a network of six working on health, education, ageing, crime reduction and early intervention as well as local economies.

Henry Overman is stepping down from SERC to lead the Centre. I’m becoming one of the Deputy Directors, and will be working at LSE alongside my research-focused role at NIESR. I’ll be leading on the academic workstream, co-ordinating the systematic reviews and demonstrator projects, as well as advising Henry on the Centre’s direction.

We’ll be working with a strong team of academics across the country – in Liverpool, Leeds, Newcastle and Bristol, as well as London. We’ll also team up with New Economy Manchester on capacity-building and demonstrator projects. And we’ll be using the UK-wide networks developed by Centre for Cities and Arup.

Developing a new organisation from scratch is exciting, challenging and a huge amount of work, as I can attest from my early days at the Centre for Cities. Unlike most start-ups, we are very lucky to have secure initial funding. And we have an emerging body of good practice to draw on. But we still have a great deal to do in the months ahead. I look forward to working with many of you as we build out.


Big data and digital firms

July 23, 2013

(C) 2013 niesr and growth intelligence

I’ve just published some new analysis of the UK’s digital economy, joint with Anna Rosso and Growth Intelligence, and funded by Google. We had a launch session yesterday with Vince Cable – see here for a good write-up by the Guardian.

We’ve done pretty well for media so far: see coverage from the BBC, FT [£], Sky, Telegraph, Independent, Scotsman and Guardian (again) among others, and a nice blog post from Google’s Hal Varian.

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This is the first phase of a research programme with roots in the resurgence of industrial policy around the world. Like many others, the UK government wants to promote ICT and digital content activities – in the global North at least, this is generally high value activity, with spillover effects to the rest of economy.

A big problem is that we have little idea of the true size and nature of these digital companies. That’s because official definitions use SIC codes, which don’t work well for companies doing innovative, high-tech stuff.

To try and fix this, we use big data provided by Growth Intelligence. GI pull in data from the web, social media, news feeds, patents and a range of other sources, and layer this on top of public data from Companies House. That gives a much richer picture of who’s out there, their characteristics and their performance.

Crucially, GI’s data buys us a lot more precision than SIC-based analysis. We can look at industries and at products, services, clients and distribution platforms.  For increasingly tech-powered sectors like architecture, that allows us to distinguish ‘digital’ companies producing (say) CAD specialist software from ‘non-digital’ ones making buildings.

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Overall, we find over 40% more digital companies than official estimates suggest. We also find that digital companies who report revenue or employment are pretty resilient, with faster revenue growth and higher average employment than non-digital companies.

And contrary to the popular sense that it’s all about London start-ups, we find hotspots of digital activity across the country, including some perhaps surprising places like Aberdeen, Middlesbrough and Blackpool.

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Okay, this is all fascinating stuff for researchers. But what should Government do differently? First, the big data field is still in its early days, and we’d encourage officials to explore how it can complement conventional statistics. Second, better data should lead to better-designed industrial policies. Finding the optimal policy mix, however, is a separate and much harder question to answer.

BIS’ information economy strategy is rightly cautious about hands-on intervention. This NBER paper by Aaron Chatterji, Ed Glaeser and Bill Kerr is a good overview of the wider evidence. Henry Overman and I will be publishing a piece in the Oxford Review of Economic Policy soon too, which puts the case for a more agglomeration-focused approach.

We’ll also be continuing the data analysis, thanks to further support from NESTA. Look out for further mapping and econometric work in the months ahead.


IZA

July 15, 2013

(c) 2013 IZA

I’ve been asked to join IZA as a Research Fellow. For someone who works on labour economics issues, this is pretty exciting. IZA is one of the best research networks around, and has about 1100 Fellows globally (all of whom are far better qualified than I am).

All IZA appointments are virtual, so this will run alongside my LSE and NIESR positions. I’ll be contributing to the Institute’s Discussion Paper series, and – I hope – developing some collaborative work with other researchers there.


Barriers to the brightest?

July 2, 2013

The UK Government’s Migration Advisory Committee has just published some new research on the economic impacts of high skilled migrants, written by me alongside colleagues from NIESR and the Migration Observatory. We did a major review of the international evidence, and spoke to a number of Tier 1 entrepreneurs and investors living and working in the UK.

We found a number of areas where UK policy design could be smarter. In particular, we’ve suggested the UK start moving towards a genuine ‘start-up visa’ of the kinds operating in Canada and Chile, and being debated right now in the US.

You can read more in NIESR’s press release here. Or download the full report here.


The world according to Brûlé, part 2

June 18, 2013

(c) Fischli & Weiss

Tyler Brûlé is in trouble again. Monocle have published their annual ‘global quality of life’ index, and as editor he has received a good deal of flak from FT readers for his latest column. Some people dislike his choices; others his methodology; others his attitude. That’s understandable: ‘For readers in Chicago, yet again your appalling homicide rate knocked you out of the running’, says Tyler at one point.

I’ve got some sympathy with attempts to rank cities against each other – after all, everyone loves a league table. But it’s very hard to do this in a way that has much general meaning – especially if, like Tyler, you’re a high-maintenance frequent flyer who rarely seems to be anywhere for more than a few days.

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Here’s what I said a while back:

First, let’s remember what we’re trying to do with city rankings. All of this is – very loosely – trying to achieve what urban economists call ‘spatial equilibrium’. This is where people and firms sort themselves across space, trading off economic, social and environmental pros and cons so that everyone finds their best place to be.

… Indexes are usually commercial products aimed at specific users. In Monocle’s case it’s globe-trotting cosmocrats  with Japanese friends; for Cushman Wakefield’s Cities Monitor it’s developers and property investors; for the Economist and Mercer, CEOs. So policymakers – who have to think beyond single interest groups – should approach with caution.

Second, actually measuring the ‘real cost of living’ is very hard to do. No-one has the definitive answer. I’ve been helping on a SERC project looking at these issues – the best work is from the US, where government economists have access to price data on thousands of items at very local level (like this paper by Bettina Aten). But even here, the researchers don’t go near the kind of soft measures Monocle is using.

Third, we need to remember that this is all about tradeoffs. In spatial equilibrium, actors are balancing economic, social and physical welfare. The main sources of urban growth and vitality - critical mass, big labour markets and ideas flow – tend to have a flipside, namely congestion, pollution and expense.

For that reason, the most liveable cities – where people might want to be – aren’t necessarily the ones where people need to be. This is why it feels odd that places like London, NYC, Hong Kong and Los Angeles don’t rank higher on the liveability rankings. In these global cities the pull of place is very strong. As Jared Diamond points out, in many ways cities like LA are terrible places to live, but millions of people still choose to be there.

Monocle readers may well live in one place and work in another – so this matters less to them. Tellingly, Brûlé eventually reveals that having tried Zurich for a few months, he moved back to much less ‘liveable’ London. His compromise is to be based in the UK and flit between Zurich (winter), Copenhagen (summer) and Tokyo (business trips). Nice work if you can get it!

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‘Poor Tyler Brûlé, condemned to orbit the earth like some kind of 21st century Flying Dutchman‘, says one FT detractor . Ouch! I guess he can take some comfort from being the star of his own, uncannily accurate parody site. And, of course, persuading people to keep paying for his business class chat.


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