Mass Migration, Cheap Labor, and Innovation∗
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Mass Migration, Cheap Labor, and Innovation∗ David Andersson† Mounir Karadja‡ Erik Prawitz§ August 2017 Please click here for the most updated version. Abstract Migration is often depicted as a major problem for struggling developing countries, as they may lose valuable workers and human capital. Yet, its effects on sending regions are ambiguous and depend crucially on local market responses and migrant selection. This paper studies the effects of migration on technological innovation in sending communities during one of the largest migration episodes in human history: the Age of Mass Migration (1850–1913). Using novel historical data on Sweden, where about a quarter of its population migrated, we find that migration caused an increase in technological patents in sending municipalities. To establish causality, we use an instrumental variable design that exploits severe local growing season frost shocks to- gether with within-country travel costs to reach an emigration port. Exploring possible mechanisms, we suggest that increased labor costs, due to low-skilled emigration, in- duced technological innovation. JEL Codes: O15, O31, O33. ∗We thank Torsten Persson, David Str¨omberg and Jakob Svensson for their guidance and support. We are grateful for comments and advice received from Philippe Aghion, Konrad Burchardi, Francisco Buera, Jon de Quidt, Nathan Lane, Andreas Madestam, Peter Nilsson, Nathan Nunn, Maria Petrova and Per Pettersson-Lidbom, as well as numerous seminar participants. †Department of Business Studies, Uppsala University. ‡Department of Economics, Uppsala University. §Institute for International Economic Studies, Stockholm University, and Research Institute of Industrial Economics. 1 1 Introduction Migration is often depicted as a major problem for struggling developing countries. While they may lose human capital and reduce their available workforce, the effects of migration on sending regions are ambiguous and surprisingly understudied. With the number of in- ternational migrants continuing to grow rapidly worldwide, studying the consequences of migration remains highly important.1 This paper presents an empirical analysis of the short- and long-term effects of migration on technological innovation in sending communities. While the effects of immigration on innovative activity have received increasing attention in the literature (see e.g. Hunt & Gauthier-Loiselle, 2010; Borjas & Doran, 2012; Hornung, 2014; Moser, Voena & Waldinger, 2014), the effects in the regions left behind remain poorly studied. Theoretically, migration may affect innovation in sending regions for different reasons. For example, it may affect innovative activity through its effects on human capital. Emigration can lead to “brain drain” (Kwok & Leland, 1982), if migrants are high-skilled, or “brain gain”, if migrants return home with accumulated human capital (Borjas & Bratsberg, 1996; Dustmann, Fadlon & Weiss, 2011). Instead, if migrants are low-skilled, the main concern may be another. By its nature, emigration can produce a shortage of labor. Labor scarcity and increasing wages could in themselves discourage the innovation of new technologies, by reducing firm profits as well as the workforce that would use them (Ricardo, 1951; Acemoglu, 2010). On the other hand, high wages may also induce the innovation of new labor-saving technologies (Hicks, 1932; Habakkuk, 1962; Acemoglu, 2010).2 Our analysis takes a historical perspective and examines one of the largest migration episodes in human history: the Age of Mass Migration. Between 1850 and World War I, nearly 30 million Europeans left their home soil and crossed the Atlantic Sea for the United States. We focus on Sweden, where as many as a quarter of the initial population emigrated. At the onset of its transatlantic migration experience, Sweden was in many regards similar to other underdeveloped countries of today. It was primarily an agrarian society abundant in low-wage workers and its production processes were highly labor intensive. The determinants behind the Swedish, and more broadly the Scandinavian, catch-up miracle of the decades before the war have been extensively debated by economists and economic historians (e.g. Wicksell, 1882; O’Rourke & Williamson, 1995; Ljungberg, 1996). While the sources of this 1In 2015, as many as 244 million international migrants lived outside their country of origin, an increase of 41 percent, compared to 2000 (United Nations, 2015). 2Crucially, technological innovation may respond in different ways depending on if technology reduces or increases the marginal product of labor (Acemoglu, 2010). Thus, while labor scarcity increases the incentives to invent labor-saving technology, the opposite would be the case for technology that constitutes a complement to labor. 2 transformation remain disputed, it is well established that Swedish wages went from being below the West European average in the 1860s to the level of British wages in 1914. Less attention has been paid to the remarkable speed of technological progress. Described as a technological revolution, this era saw a vast increase in mechanized equipment, which arguably had the most profound effect on the nature of economic development (Heckscher, 1941). Concurrent with the mass departure of predominantly low-skilled workers, innovations surged, and at the turn of the century, after about a quarter of its initial population had left the country, the number of technological patents reached record high levels. Shedding light on the “black box” of technological progress, this paper asks if and to what extent migration may have played a role in this development. To measure the effects of migration on innovation, we use a novel and personally digitized data set covering the universe of all technological patents in Sweden between the mid 19th century and World War I. We combine it with data from church books and shipping line records covering all Swedish migrants, both emigrants and immigrants, for the relevant period, to construct a data set at the municipal level. Our main empirical framework compares long-term changes in innovative activity be- tween municipalities within the same region, but with different emigration histories. To obtain exogenous variation in cumulative migration, we employ an instrumental variable strategy making use of two sources of variation.3 First, it is well-recognized that a series of harvest failures, caused by unusually poor weather conditions, was crucial as a push factor for the first wave of large scale migration (see e.g. Sundb¨arg, 1913; Thomas, 1941; Barton, 1994; Beijbom, 1995). To capture the importance of harvest failures, we construct a mea- sure of frost incidence during growing seasons at the onset of mass migration. Second, since predominantly two ports where used in the early stages of the emigration episode (Gothen- burg and Malm¨o),we capture the travel cost of emigrating by calculating the distance to the nearest emigration port.4 Interacting these two sources of variation, the idea behind the instrument rests on the notion that a negative shock to agriculture increased migration rates and especially so if migration costs were low. Due to Swedish migration being highly path dependent (Runblom & Norman, 1976; Beijbom, 1995; Hatton, 1995), something we also document, we can strongly predict not only the first wave of migration, but emigration during the entire mass migration period. 3Our identification strategy is similar to the one employed in a companion paper by two of the authors of this paper (Karadja & Prawitz, 2016). 4It is well established in the migration literature that travel costs constitute an important part of the migration decision (see e.g. Quigley, 1972; Morten & Oliveira, 2014). Studying the effects of emigration on regional wage convergence, Enflo, Lundh & Prado(2014) use the distance to Gothenburg as an instrument for emigration. 3 Constructing our instrument as an interaction between a negative shock to agriculture and a proxy for emigration travel costs, enables us to control for the direct effects these two variables may have by themselves. Therefore, we can arguably overcome typical threats to exclusion restrictions with instruments capturing push factors of migration. In a balance test, we document that our instrument is not systematically related to baseline characteristics. And in a placebo test, we show that frost shocks during non growing seasons, constructed in the same fashion as our growing season counterparts, do not affect emigration, nor do they have an effect on other outcome variables. Our results show that in the long run, emigration caused an increase in technological innovations in origin municipalities. Our IV estimates report that a ten percent increase in the number of emigrants during the main Swedish transatlantic emigration period 1867– 1900 would have increased the number of patents by roughly 6 percent. Moreover, weighting patents by a measure of their economic value, using information on patent fees paid, we find an even stronger positive effect on innovations. Our results are robust to the inclusion of several baseline controls as well as a variety of different specifications. In the second part of our analysis, we attempt to understand the underlying mechanism of our main result. We start by studying the timing of the effects of migration. While it is possible that migration had a negative short-term impact on innovation, e.g. through “brain drain”, our estimates suggest that patents were positively affected shortly after migration