The effect of a culturally diverse labour supply on regional income in the EU

Because of an inflow of people into the EU but also because of the freedom of workplace choice within the EU, European regions are becoming more diverse in cultural terms. Despite the redistribution of labour and changes in regional labour supply, the ultimate question raised is whether there are additional gains or losses as a result of immigration flows. This paper therefore focuses on the impact of migrants on regional Gross Domestic Product per capita for European regions. Does the proportion of foreigners in the labour force increase or lower regional income? Does the composition of non-natives with respect to their countries of origin matter? We provide evidence that immigration and a higher degree of cultural diversity raise regional income, while controlling for endogeneity. We show that cultural diversity promotes income gains for destination countries. Whereas the presence of dominant groups reduces the costs of interaction and integration, diversity among foreign-born people increases the supply of different skills, knowledge and tasks. Thus, in general immigration has a positive net effect on regional performance and the costs of immigration in destination regions are balanced out. The regions of origin within the EU face a rise or a decline in income, depending on the labour market status of movers. Copyright Springer Science+Business Media New York 2012