Dear Mr Shorten: Immigration is good for innovation in Australia

A letter to Mr Shorten

(read our full article on Medium here)

Migration is a key feature of a more interconnected world. Despite recent concerns about sovereignty and migration’s economic and social implications, the movement of people across the world’s borders has been shown to boost global productivity. The countries that prioritise integration stand to make the most of this potential — improving outcomes for their own economies and societies as well as for migrants themselves.

But if cross-border migration is a natural outcome of a more interconnected world and a global labour market, why is there growing opposition to immigration?

Opposition to immigration seems to be most prevalent in developed economies facing slow growth, a widening gap in social and economic inequality, and structural changes in their labour markets with the new digital economy. For example, in the USA, UK, Europe and Australia. Yet the markets in which we are seeing heated political debate about accepting migrants, these nations could actually benefit from the labour, innovation and entrepreneurialism that migrants can bring.

A recent McKinsey report estimated that in 2015, the world’s 247 million cross-border migrants contributed 9.4 percent of global GDP, or roughly $6.7 trillion worldwide — some $3 trillion more than they would have produced in their origin countries.

In Australia, migrants contribute $330 billion to GDP. Migration is replacing fertility as the primary driver of population growth in developed countries worldwide and Australia is one such country buoyed by migration with more than half (54.3 per cent) of the 1.4 per cent annual population growth attributable to migration.

Statistics show that migrants contribute disproportionately to new business formation, innovation, and job creation. Some interesting statistics:

  • As of 2015, foreign nationals held slightly more than half of all patents filed in the United States[1].
  • A 2016 study found that more than half of US start-ups valued at $1 billion or more that have yet to go public — unicorn companies with potential for high growth and job creation — have at least one migrant co-founder[2].

Despite the clear advantages, a key question in the debate is whether migrants increase competition for jobs, and negatively impact employment and wages for citizens.

An Australian Government Productivity Commission report published in 2016[3] concluded that, on the basis of an extensive review of academic evidence and data modelling, immigration does not harm employment or wages for Australians. The exception to this conclusion was Australia-born workers who have not completed high school, the so-called high school drop-out category are often the closest substitutes for low-skill migrants.

Experience also shows that immigration is good, indeed essential, for business innovation and growth particularly in fast-growing industries such as IT. Australian founder of IT company, Atlassian, Mike Cannon-Brookes, recently expressed concern about proposals by the Australian Government to tighten Australia’s 457 temporary skilled work visa program. Atlassian has a market capitalisation of more than $6 billion, and is a global IT business is responsible for creating thousands of new jobs in Australia and overseas. Like other companies in the tech and start-up sector in Australia, Atlassian has been an openly active user of the 457 program bringing skilled IT workers to Australia — talent that doesn’t exist in Australia given the relatively short life of its tech industry.

Global Australian businesses like Atlassian have cause for concern about restricting 457 visas, due to the lack of senior, more experienced IT workers in the Australian market. Atlassian also has offices around the world, requiring mobility for its employees. Whilst Atlassian has a history of giving educational scholarships to talented young Australians, inexperienced Australian IT graduates do not substitute for workers with 10 years’ international experience working in Silicon Valley or Amsterdam.

This is just one nuance that is not being articulated in the debate over the existence of skills shortages.

The innovation benefits and entrepreneurial energy brought to a market by migrants is a key consideration in the debate. Research shows that diversity in the workplace, including diversity of gender, ethnicity and experience unlocks innovation and drives market growth.

Companies with diversity both in terms of inherent diversity (of gender, ethnicity and sexual orientation) and external diversity (skills and experience) are 45% likelier to report that their firm’s market share grew over the previous year and 70% likelier to report that the firm captured a new market, according to research conducted by the Harvard Business Review in 2013.

While businesses such as Atlassian and others are embracing the power of difference and diversity, the Government seems to be missing a key point. Experience gained abroad working in another market provides invaluable insights into new markets and products which enables business growth and creates more jobs for more citizens. Diversity is key for businesses competing domestically and internationally.

Overall, migration is a boon for economic growth and enables companies to realise their full innovative potential. An evidence-based debate on the issue is needed to ensure that restrictions on immigration based on popular, but perhaps under-informed sovereignty concerns, do not undermine Australia’s economic prosperity.

References:

[1] US patent statistics chart, calendar years 1963–2015, US Patent and Trademark Office data.

[2] Stuart Anderson, Immigrants and billion-dollar startups, National Foundation for American Policy, March 2016.

[3] Breunig, R., Deutscher, N. and To, H.T. ‘The relationship between immigration to Australia and the labour market outcomes of Australian workers’, Technical Supplement A to the Productivity Commission Inquiry Report Migrant Intake into Australia, Canberra, April 2016.

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