Study links firms' productivity with population density and R&D spending Media Release 30 June 2011 Department of Labour research shows a positive relationship between population density and expenditure on research and development, and business productivity. The relationship is stronger for small firms and new firms. A research report 'Productivity and Local Workforce Composition' investigates the relationship between the productivity of firms and the characteristics of the local population where the firm is located. It is part of a series of research projects on the economic impacts of immigration. The research was based on annual firm-level production data covering a large proportion of the New Zealand economy and area-level workforce characteristics obtained from population censuses. The research focused on three characteristics of the local population: the proportions that are highly qualified, newly arrived in the area, and foreign-born. It shows that: Population density has a clear positive relationship with productivity, for example a 10 percent higher density is associated with productivity that is 0.1 percent higher. Firms operating in areas where the workforce is relatively highly qualified have higher productivity than similar firms located in areas with a smaller proportion of highly qualified workers. There are several mechanisms that could drive this finding, including less scarcity of skilled labour for firms to compete for, or the knowledge transfers between skilled workers increasing productivity. The benefits of a higher skilled local workforce are even greater for firms that: use a high proportion of high skilled labour ave a higher than average R&D