Diversity wins

Imagine you are an economist and a great football (soccer) fan. In other words, you are a little bit like me. And like me, you are not just a football fan, but also love to live in a diverse multi-cultural environment. I mean, I have lived in Switzerland for 21 years and it is a fantastic place to live, but the cultural diversity of London means that I can get better food, better theatre, better music, and a lot of other things in London. If you ask me whether I prefer to live in London or Zurich (or my hometown Stuttgart), I’ll take London any day. But that is a personal preference and I understand that many people prefer to live in the orderly world of Switzerland.

But we know that certain abilities are linked to the gene pool. You may not find it politically correct, but there is a simple genetic reason why the sprint and the distance running events at this year’s Olympic Games were dominated by black and brown people. Of course, it is not just genetics, but also the institutional setup and the support young kids get to practice a sport that is of vital importance. But if your gene pool is more diverse, it is more likely that a country will be able to find more talented young people who through support, practice, and other means will rise through the ranks to become world-class athletes. 

So if you are a football fan and an economist, you can start to combine your two interests by examining the impact of diversity on football performance. In fact, this will give you some indication about the indirect benefits of international migration and free movement of people and, conversely, the losses we can anticipate in a world where immigration is curtailed.

In the past, most football teams were relatively homogenous in terms of ethnicity. The 1966 England team that won the World Cup was about as ethnically diverse as the German team that won in 1974, that is to say, not at all. Only the Brazilian team of that day could be called ethnically diverse and their ethnic diversity provided them with a pool of talented players that was sufficiently large to overcome the better institutional setup and support for young kids in England or Germany at the time. In essence, Brazil had the bigger talent pool, but Germany and England had the better institutions.

But since the 1970s, the institutional setup has much improved for players in emerging markets. Talented players from South America, Africa, or Asia can now move to European academies at a very young age where they enjoy the best possible support to develop their talents (Messi, anyone?). Or they can become professionals in their home countries and quickly move to play in one of Europe’s top five leagues. 

Thus, the institutional advantage that countries like England, Germany, and others enjoyed in the past has declined substantially. And this meant that ethnically homogenous teams slowly started to decline. Look at the English, French, Belgian, or German team of today and you will find that they are full of players of color as well as white players. And the more ethnically diverse these teams are, the more successful they tend to be. As Michael Beine and his colleagues from the University of Luxembourg showed, teams that are more ethnically diverse tend to improve in performance and go deeper into the Euros or World Cups.

Take a look at the ethnic diversity of European football teams below. Is it a coincidence that Belgium had its best results in history in recent years when the team was substantially more diverse than in the 1970s or 1980s? Or France? Strangely, Italy won the World Cup in 1982 and 2006 just when the ethnic diversity of the team was higher than usual. Meanwhile, Bulgaria reached the World Cup semi-final in 1998 and Turkey in 2002. Since then, they have been on a constant downward trajectory.

Ethnic diversity of European national football teams

Source: Beine et al. (2021)

Anecdotes are not data, but Beine’s analysis shows that there is indeed a benefit to countries from having a more diverse population. 

Of course, trying to become better at sports is not a good reason to allow more immigrants into a country, but by now the common result of economic research on the impact of immigration on job creation and wages is that reducing immigration leads to lower job creation and higher unemployment since companies have to pay higher salaries for workers in jobs that used to be done by immigrants (which on average work at 5% to 15% lower wages than similarly qualified natives). These higher costs, on the other hand, mean that companies are less profitable and create fewer new jobs so that in the long run unemployment rates rise in countries with lower immigration. 

Unregulated immigration, on the other hand, creates wage competition for natives and declining wages. If the wages decline enough, companies will create new jobs to such an extent that employment growth outpaces wage declines, and the wages of natives in particular start to rise in the long run above the levels before immigration increased. But if wages don’t fall enough, this job creation isn’t powerful enough to overcome the wage effect and natives are in the long run worse off (i.e. have lower wages and a higher risk of unemployment) than without immigration. Ironically, as this study indicates, in the case of the United States it is undocumented immigrants that create a sufficiently strong wage effect to make natives better off in the long run and increase their wages, while an increase in documented (legal) immigrants likely reduces employment and wages for natives.

Similarly, if you introduce a point-based immigration system where you only allow highly qualified immigrants into the country but not unqualified low wage workers, the wage effect is minimal and the job creation is minimal as well. The end result, as this study suggests, is again that native workers are worse off because businesses have no incentive to create new jobs because existing low skilled jobs have to be filled with more expensive native workers.

In short, diversity not only wins you sports trophies but also higher wages, lower unemployment, and stronger economic growth in the long run.