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Cultural diversity and London

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Cultural diversity and London s economy Max Nathan London School of Economics | SERC | LSE Cities LSE London seminar, 5 March 2012 * – PowerPoint PPT presentation

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Title: Cultural diversity and London


1
Cultural diversity and Londons economy
  • Max Nathan
  • London School of Economics SERC LSE Cities
  • LSE London seminar, 5 March 2012

2
What Im going to talk about
  • The big picture
  • Concepts and theory
  • Evidence labour markets, wider effects
  • Cultural diversity and London firms
  • Policy lessons
  • Im an economic geographer. I use a lot of
    economics
  • There will be equations

2
3
Headlines
  • London exhibits super-diversity
  • Immigration and natural change twin drivers of
    this
  • Policymakers need to think about both labour
    market effects (of immigrants) and wider effects
    (of diversity)
  • Londons diversity has economic benefits for the
    capitals businesses - for example, on innovation
  • Economic effects of immigration on London and
    (some) Londoners seem more mixed
  • The current policy mix needs to change

3
4
Context
4
5
Population change in the UK
Source ONS (2010)
5
6
Stylised facts
  • The UK has become more diverse over the past two
    decades - alongside other Western countries
    (Putnam 2007)
  • Two drivers immigration and natural change
  • 2007 net immigration 52 of UK population
    growth
  • 2009 non-white British groups 1/6 of the
    English population
  • 2050 minority ethnic groups 21 of the UK
    population?
  • (ONS 2011, Wohland et al 2011)
  • Diversity is urbanised cities and urban areas
    have the largest migrant and minority populations
    (Champion 2006)

6
7
Super-diversity?
  • Vertovec diversification of diversity since
    the early 1990s has led to super-diversity
    (Vertovec 2006, 2007)
  • 1994 Ireland, India, Pakistan, Germany, USA
  • 2008 Poland, Zimbabwe, China, ex-USSR, Czech
    Republic
  • Growth of new migrant communities (Kyambi 2005)
  • ESOL from c.10-20 of children, 2003-2009 (DfE
    2011)
  • 2011 Census likely rise in mix of religions
    practised
  • Super-diversity is an urban phenomenon, and
    largely a London phenomenon

7
8
London
Source Hall (2011)
8
9
London
  • London exemplifies the cosmopolitan world city
  • Major centre of world financial system (still)
  • Contributes c.20 of UK GVA
  • London schoolchildren speak over 300 languages
  • Contains 40 of net migration to the UK, has
    around 48 of Englands non-white populations
  • (GLA 2008, Gordon et al 2007, Champion 2006,
    Baker and Eversley 2000)
  • Londons cultural diversity is seen as a social,
    economic asset - by London government, Whitehall,
    Londoners
  • (GLA 2008, Legrain 2004, Leadbeater 2008)

10
  • London is uncharted territory. Never have so
    many different kinds of people tried living
    together in the same place before. What some
    people see as the great experiment of
    multiculturalism will triumph or fail here.
  • Benedictus (2005)
  • By the tenth century the city was populated by
    Cymric Brythons and Belgae, by remnants of the
    Gaulish legions, by East Saxons and Mercians, by
    Danes, Norwegians and Swedes, by Franks and Jutes
    and Angles, all mingled and mingling together to
    form a distinct tribe of Londoners
  • Peter Ackroyd, London (2000)

10
11
Some more history
  • 883AD King Alfred bans the Danes from London.
    Sent to live east of the Lea (Keith 2005)
  • Complaints across medieval Britain that
    foreigners were practising their own customs
    (Vertovec 2007)
  • 1610 Elizabeth I orders the expulsion of negars
    and Blackamoores from the capital (Sandu 2004)
  • 1867 Times leader there is hardly such a thing
    as a pure Englishman on this island our
    national denomination, to be strictly correct,
    would be a composite of a dozen national titles
    (Sandu 2004)

11
12
Theory and evidence
12
13
Definitions
  • Cultural diversity mix of ethnic / cultural
    identity groups
  • Requires a prior notion of cultural identity
  • Cultural identity multifaceted, subjective,
    evolves over time (Aspinall 2009, Michalopolous
    2008, Ahlerup and Olsson 2007 etc.)
  • This means that quantifying cultural identity and
    thus cultural diversity is very hard
  • Workaround use identity proxies such as
    country of birth, ONS ethnic groups, and use
    simple shares or indices for diversity (Ottaviano
    et al 2007)

13
14
Economics of diversity
  • In theory, a diversity shock to an area might
    have
  • Effects in local labour markets (as e.g.
    immigrants arrive)
  • Wider effects on consumer markets, business
    performance, entrepreneurship, trade etc. (as new
    communities form)
  • Labour market analysis tends to be neo-classical,
    predicts average effect on UK native wages,
    employment is zero
  • Labour market institutional change occupational
    clustering of migrants low-quality employers
    become migrant-dependent lock out of low-skill
    natives?

14
15
Economics of diversity (2)
  • Wider effects are under-explored
  • Multiple channels, operating both at firm and
    city level
  • Production complementarities may include
  • More diverse workforces better mix of ideas
    good for innovation?
  • Co-ethnic networks facilitate international
    market access?
  • Ethnic entrepreneurs more likely to found
    start-ups?
  • Versus lower social capital in diverse firms
    discrimination?
  • Urban consumer markets cosmopolitan urban
    populations demand new products or urban
    crowding, competition?

15
16
Evidence labour markets
  • UK-wide studies suggest
  • Small and/or insignificant average effects of
    immigrants
  • Small negative effects on wages, jobs of
    low-skilled Britons
  • Links to casualisation of entry-level work
  • (MAC 2012, Green 2011, Cook et al 2011,
    Nathan 2011, Nickell and Salaheen 2008)
  • London studies suggest
  • Suggestive evidence of wage pressure for
    low-skilled UK-born
  • Clear migrant division of labour catering,
    cleaning, care 56-76 foreign-born workforce vs.
    34 London ave.
  • Importance of employment agencies, hierarchies
    of hiring
  • (Wills et al 2010, Gordon and Kaplanis
    2012)

16
17
Evidence wider effects
  • Evidence on production complementarities suggests
  • Mixed evidence of workforce diversity on
    innovation
  • Stronger evidence that co-ethnic networks and
    entrepreneurs help knowledge transfer, market
    access, trade
  • (Ozgen et al 2011, Mare et al 2001, Kerr
    2009, Wadhwa et al 2007, Saxenian 2006)
  • Evidence on urban markets suggests
  • Some links between population and service sector
    mix, mainly from qualitative studies in single
    cities
  • Mixed evidence on immigration and housing costs
  • (Sa 2011, Nathan 2011, Mazzolari and Neumark
    2009, Gordon et al 2007, Saiz 2003)

17
18
What we did
18
19
Data and sample
  • Source London Annual Business Survey (LABS)
  • Annual survey of firms across Greater London
    region
  • Provides very rich information on workforce and
    ownership characteristics, business performance
    and constraints
  • Years 2005-2007, repeated cross-section
  • Units individual sites, with bias towards HQs
  • Observations 7,425 firms
  • Context 2004 EU expansion gt very large
    increases in net migration (and thus diversity)
    in UK, especially London
  • Focus business owners / partners key
    decision-makers

20
Model
  • Model is a simplified (knowledge) production
    function
  • For firm i in sector j and year t, we estimate
  • Yijt aDIVijt CONTROLSijtb SECTj YEARt
    ei (1)
  • Y innovation, commercialisation, sales
    orientation, reasons for firm foundation /
    entrepreneurship
  • DIV proxies migrant-diverse and
    ethnic-diverse firms
  • migrant diverse mix of UK/non-UK born
    partners / owners
  • migrant firm all non-UK born partners /
    owners
  • ethnic diverse at least half minority
    ethnic partners/owners

21
Model (2)
  • Our vector of controls includes
  • firm age
  • firm size, sq root
  • RD spend
  • Collaborative activity
  • Exports
  • PLC status
  • Management ability (qualifications, experience,
    training etc.)
  • Knowledge intensive business services (KIBS)
    dummy
  • SECT one of 150 3-digit SIC sectoral dummies
  • YEAR 2005, 2006 or 2007

22
Innovation
  New product / service Mod. product / service New equipment New way of working
       
Migrant diverse firm 1.238 1.192 1.128 1.158
Migrant diverse firm (0.084) (0.097) (0.117) (0.110)
       
Migrant firm 1.134 1.182 1.188 1.164
  (0.087) (0.095) (0.101) (0.089)
       
Observations 7476 7457 7435 7441
Pseudo R2 0.088 0.071 0.041 0.059
LL -3854.84 -3678.76 -3565.64 -3777.23
Source LABS. Notes Results are odds ratios. HAC
standard errors in parentheses. All
specifications include controls, year and SIC3
dummies some observations dropped because of
perfect prediction groups. significant at
10, 5, 1.
22
23
Commercialisation
  New product / service and sales growth Mod. product / service and sales growth New equipment and sales growth New way of working and sales growth
       
Migrant diverse firm 1.122 1.111 1.163 1.042
Migrant diverse firm (0.121) (0.132) (0.124) (0.097)
       
Migrant firm 1.023 1.081 1.185 1.08
  (0.119) (0.130) (0.148) (0.121)
       
Observations 7370 7301 7243 7305
Pseudo R2 0.097 0.099 0.075 0.087
LL -2346.35 -2068.58 -1986.53 -2119.61
Source LABS. Notes Results are odds ratios. HAC
standard errors in parentheses. All
specifications include controls, year and SIC3
dummies some observations dropped because of
perfect prediction groups. significant at
10, 5, 1.
23
24
What type of firms?
  New product / service Mod. product / service New equipment New way of working
       
Migrant diverse firm 1.316 1.473 1.348 1.363
  (0.073) (0.103) (0.218) (0.091)
       
Migrant firm 1.025 1.221 1.152 1.145
  (0.066) (0.105) (0.105) (0.088)
       
Knowledge-intensive 1.127 1.034 0.978 1.173
(KI) firm (0.127) (0.07) (0.102) (0.100)
       
KI migrant diverse 0.888 0.728 0.636 0.751
  (0.082) (0.067) (0.138) (0.084)
       
KI migrant firm 1.313 1.037 1.057 1.104
  (0.129) (0.101) (0.146) (0.129)
       
Observations 7524 7524 7524 7524
Log-Likelihood -4167.398 -3931.26 -3832.756 -4009.598
Source LABS. Notes Results are odds ratios. HAC
standard errors in parentheses. All
specifications include controls, year and SIC3
dummies some observations dropped because of
perfect prediction groups. significant at
10, 5, 1.
24
25
Sales / markets
Dependent variable sales sales sales
Dependent variable Local National International
       
Migrant diverse firm 1.348 -3.666 2.318
  (1.532) (1.309) (0.934)
       
Migrant firm 1.718 -4.128 2.410
  (1.290) (1.102) (0.786)
       
Observations 3089 3089 3089
R2 0.281 0.205 0.185
       
Ethnic diverse firm 6.493 -5.743 -0.75
  (1.305) (1.117) (0.800)
       
Observations 3089 3089 3089
R2 0.286 0.207 0.182
Source LABS. Notes HAC standard errors in
parentheses. All specifications include controls,
year and SIC3 dummies some observations dropped
because of perfect prediction groups.
significant at 10, 5, 1.
25
26
Entrepreneurship
Source LABS
Standard errors in parentheses. All specifications use HAC standard errors, include year and sector dummies. Standard errors in parentheses. All specifications use HAC standard errors, include year and sector dummies. Standard errors in parentheses. All specifications use HAC standard errors, include year and sector dummies.
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27
Implications
27
28
Toplines
  • Topline Londons cultural diversity helps
    London firms
  • Diversity is linked to ideas generation, but not
    to successful commercialisation of those ideas
  • Diversity seems to have a stronger effect for
    less knowledge-intensive firms (e.g. retail,
    consumer services)
  • All-migrant teams also help ideas generation,
    with a stronger effect in knowledge-intensive
    firms
  • Migrant-headed and migrant-diverse firms sell
    largely to international markets ethnic diverse
    firms more localised
  • Migrant status has a small but robust link to
    entrepreneurial behaviour

28
29
Issues (1)
  • Why do diversity and co-ethnicity not feed
    through to commercialisation?
  • Bad ideas / different skill sets?
  • Management experience, skills are key barriers to
    growth for minority ethnic firms (Lee 2012)
  • Have we measured commercialisation correctly?
  • Discrimination?
  • Other constraints on business growth finance,
    space etc. ?
  • Potential for stronger business support policies?

29
30
Issues (2)
  • Is the immigration cap a good idea? Doesnt look
    like it
  • Restricts Londons talent pool migrant status is
    linked to entrepreneurial behaviour
  • Entrepreneurship Visa 50k bond!
  • Restrictions on post-study visas may have similar
    effect
  • Labour market institutions in London
  • If firms hire more diverse teams, workers who
    would have been hired are losers (Borjas and
    Doran 2012) but probably get other jobs
  • Case for re-regulating some employment agency
    activity?
  • Better enforcement of minimum wage, working
    conditions
  • More effective employment and training for
    low-skilled Londoners

30
31
Knowledge gaps
  • Who are the entrepreneurs? Is there a hierarchy
    of entrepreneurship?
  • Is there really a commercialisation gap? Need
    to explore sectoral differences in more detail
  • Would the same population have the same effects
    in other cities? Comparative studies of same
    groups in London, NYC
  • London is unique. Similar effects in other UK
    cities?

31
32
Thanks.
  • m.a.nathan_at_lse.ac.uk
  • personal.lse.ac.uk/nathanm
  • squareglasses.wordpress.com
  • _at_iammaxnathan

33
Identification challenges
  • Cities / positive selection, simultaneity raise
    levels of both innovation and DIV
  • gt exploit quasi-experiment conditions post-2004
  • Individuals / ethnic entrepreneurs ambitious /
    talented people would be innovative anywhere
  • gt separate tests on company founders
  • Firms / both-ways causation more innovative
    firms may a) hire b) attract a more diverse
    workforce
  • gt instrumental variables approach

34
Descriptives
Source LABS
34
35
Market shares
  • For firm i in sector j and year t, we estimate
  • Yijt a bDIVijt CONTROLSijtb SECTj YEARt
    ei (2)
  • Y local / national / international sales
  • DIV No. of migrant / minority ethnic partners
    / owners
  • (migown_1ormore, ethown, migfirm)
  • CONTROLS firm age, size, RD spend,
    collaboration, mgt ability
  • SECT one of 150 3-digit SIC sectoral dummies
  • YEAR 2005, 2006 or 2007
  • Estimate as seemingly unrelated regressions gt
    provides some efficiency gains over OLS

36
Company founders
  • We isolate the subset of LABS respondents who are
    involved in company formation
  • LABS gives reasons for company formation. We
    classify these as entrepreneurial, locked out
    or other
  • We look at whether migrant status affects reasons
    for company formation
  • For founder i, sector j, year t
  • Pr(Yijt 1) aDIVijt MGTijtb DIVMGTijtc
    Sj Tt ei (3)
  • Y Reason for firm formation (entrepreneuial /
    locked out / other)
  • DIV Dummy for migrant founder
  • MGT management ability controls
    (qualifications, courses, training, experience)

37
IV
  • Issue both-ways causation in firms. Upwards
    bias on DIV
  • Problem not a true panel, hard to find suitable
    instrument
  • Approach exploit historic settlement patterns
    at LAD level (cf Altonji and Card 1991). For firm
    i, borough j, year t
  • pDIVijt DIVjtbase (4)
  • t 2007, tbase 2001 (using 2001 Census data)
  • Estimate on 2007 data only, 2SLS with robust SEs
  • Caveats single cross-section, instrument
    dummies with continuous variables

38
IV (2)
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