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Labor diversity and firm productivity

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  • Parrotta, Pierpaolo
  • Pozzoli, Dario
  • Pytlikova, Mariola

Abstract

Using a matched employer–employee data-set, we analyze how workforce diversity associates with the productivity of firms in Denmark, following two main econometric routes. In the first one, we estimate a standard Cobb–Douglas function, calculate the implied total factor productivity and relate the latter to diversity statistics in a second stage. This reduced-form approach allows us to identify which types of labor heterogeneity appear to descriptively matter. In the second approach, we move toward a richer production function specification, which takes different types of labor as inputs and that allows for flexible substitution patterns, and possible quality differences between types. Both methods show that workforce diversity in ethnicity is negatively associated with firm productivity. The evidence regarding diversity in education is mixed.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 66 (2014)
Issue (Month): C ()
Pages: 144-179

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Handle: RePEc:eee:eecrev:v:66:y:2014:i:c:p:144-179

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Web page: http://www.elsevier.com/locate/eer

Related research

Keywords: Labor diversity; Substitutability; Complementarity; Communication barriers; Total factor productivity;

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References

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Cited by:
  1. Parrotta, Pierpaolo & Pozzoli, Dario & Sala, Davide, 2014. "Ethnic Diversity and Firms' Export Behavior," IZA Discussion Papers 7923, Institute for the Study of Labor (IZA).

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