Engineers, scientists and other inventors who head to new jobs in other countries create a host of economic side-benefits for their new organization and country – as well as for the organization they left behind. That’s because the expansion of these innovators’ social and professional networks brings fresh ideas and know-how flowing to their current organization and back to their previous one, as they stay in touch with old colleagues. Eventually, this process broadens the knowledge base in the inventor’s new country as well. These findings (based on empirical evidence from patent citations used to track the flow of ideas), are contained in a study by Alexander Oettl, a PhD student, and Ajay Agrawal, Peter Munk Professor of Entrepreneurship, both at U of T’s Rotman School of Management.
Recruiting firms, however, only pay for the value they can capture themselves – not for the value that other local firms derive from the addition of new talent to the community. Economists refer to this extra value as an “externality” since it is external to the priced transaction between employer and employee (salary, for example). As a result, from a national welfare perspective, firms often under-invest in hiring the best foreign talent. Oettl and Agrawal argue that because certain recruits generate large positive externalities for a region, it may make sense for the government to subsidize these particular hires. And companies who lose prized employees to other countries can improve the “half-life” of the loss by maintaining or reestablishing relationships through such efforts as alumni networks.