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March 10, 2008

Richard Florida

Brain Circulation

« Find Your Place | Main | Inequality »

A new study by my Rotman School  colleague and MPI fellow Ajay Agrawal and Alexander Oettl, a doctoral students shows how immigrant inventor-entrepreneurs create benefits all around: (h/t: Ken McGuffin):

Engineers, scientists and other inventors who head to new jobs in other countries create a host of economic side-benefits not only for their new organization but also for their new country -- and the organization they left behind. That’s because the resulting expansion of these innovators’ social and professional networks brings new know-how and ideas flowing to their current organization and even back to the one they’ve left behind, as they stay in touch with old colleagues. Eventually this process broadens the knowledge base in the inventor’s new country as well.

In setting the new employee's compensation, however, the recruiting firm will only pay for the value they can capture themselves, not for the value that other local firms derive from the addition of this new talent to the local community. Economists refer to this "extra value" from the new recruit that spills over to other firms as an externality since it is not priced.  As a result, from a national welfare perspective, firms often under invest in hiring the best foreign talent.

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