Thursday, November 9, 2017

Going Back and Doing Good: When Foreign Workers Return Home

Here is an interesting contradiction: Some politicians say that relying less on foreign workers will make their nation more competitive, but in fact it makes the workers’ home country more competitive. Notice that I said contradiction, not paradox, because it is not a paradox at all. It is logical, and it is supported by recent research.

Here is how it works, as explained in an article by Dan Wang in Administrative Science Quarterly. Foreign workers are often used by highly advanced and competitive firms, because those firms are best positioned to take advantage of a worker’s skill wherever it is found, and to transfer it to wherever it is needed. They also have excellent production processes, advanced technologies, and knowledge on how to best operate these. Sometimes their foreign workers go back to their home countries (usually voluntarily). What happens then?

The start is quite simple. These workers may be holding knowledge of great value to firms in their home countries, so the key is whether they can make a knowledge transfer back home. The firms that hire them, or the new firms they form if they become entrepreneurs, will benefit from their knowledge. But the full story is not as simple as the start. These workers differ in how well connected they are to others, in the companies they worked with abroad, and in the companies they work with after returning. Their personal networks differ in how many people they know and how well they know them. It turns out that knowledge transfer depends greatly on these connections, because the greatest transfers happen when a worker is highly connected both abroad and after returning home.

The conclusion is clear. Playing the competitiveness card may be a good way to cater to xenophobia among voters, because those who prefer fewer foreigners around like to hear reasons for their dislike. (Even if the excuse isn’t true, it is nice to have an excuse.) But competitiveness is not a valid reason to send foreign workers home.

Wang’s research had one more important conclusion: it was not just personal networks that made knowledge transfers effective, but also an absence of xenophobia in the home country. Now the contradiction becomes even more interesting. Xenophobic policies of sending people home may be phrased as helping competitiveness, but they usually hurt it — except when the workers come from a country with xenophobic people, because then the knowledge they have won’t transfer back. Xenophobia is a lose–lose proposition.


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