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The Impact of a Culturally Diverse Workforce on Firms' Market Size: An Empirical Investigation on Germany

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  • Stephan Brunow

    (Institute for Employment Research, Nuremberg, Germany)

  • Peter Nijkamp

    (VU University Amsterdam)

Abstract

There is evidence from the literature that firms enjoy higher productivity levels when the workforce employed is culturally more diverse. It is an open question whether this gain is utilized to shift the supply curve and set lower prices, in order to achieve a higher demand and possibly higher revenues. This knowledge gap is not addressed in the existing literature, and forms the departure of our research. We introduce a reduced-form model, inspired by the study of Melitz and Ottaviano (2008) on heterogeneous firms, and add labour productivity by using the approach of Ottaviano and Peri (2005) on cultural diversity. In our empirical study, we employ German data, while the field of research is conducted for single plants, and industry-specific effects are taken into account. Our analysis shows significant positive effects of the cultural diversity of the high-skilled workforce on the market size of single establishments. We conclude that emerging productivity gains are not just paid as dividend or factor rewards but are also used to set lower prices in order to achieve higher demand.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 12-082/3.

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Date of creation: 09 Aug 2012
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Handle: RePEc:dgr:uvatin:20120082

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Keywords: cultural diversity; firm heterogeneity; market size;

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References

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  1. Niebuhr, Annekatrin, 2000. "Convergence and the effects of spatial interaction," HWWA Discussion Papers 110, Hamburg Institute of International Economics (HWWA).
  2. Combes, Pierre-Philippe & Magnac, Thierry & Robin, Jean-Marc, 2004. "The dynamics of local employment in France," Journal of Urban Economics, Elsevier, vol. 56(2), pages 217-243, September.
  3. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  4. Ceren Ozgen, 2011. "The Impact of Cultural Diversity on Innovation: Evidence from Dutch Firm-Level Data," Norface Discussion Paper Series 2011013, Norface Research Programme on Migration, Department of Economics, University College London.
  5. Niebuhr, Annekatrin, 2006. "Migration and innovation: Does cultural diversity matter for regional R&D activity?," IAB Discussion Paper 200614, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  6. Philippe Martin & Thierry Mayer & Florian Mayneris, 2011. "Spatial concentration and plant-level productivity in france," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  7. Stephan Brunow & Uwe Blien, 2011. "Effects of cultural diversity on individual establishments," ERSA conference papers ersa11p187, European Regional Science Association.
  8. Ozgen, Ceren & Nijkamp, Peter & Poot, Jacques, 2011. "The Impact of Cultural Diversity on Innovation: Evidence from Dutch Firm-Level Data," IZA Discussion Papers 6000, Institute for the Study of Labor (IZA).
  9. Ceren Ozgen & Peter Nijkamp & Jacques Poot, 2011. "Immigration and Innovation in European Regions," Tinbergen Institute Discussion Papers 11-112/3, Tinbergen Institute.
  10. TABUCHI, Takatoshi & THISSE, Jacques-François, . "A new economic geography model of central places," CORE Discussion Papers RP -2267, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Ottaviano, Gianmarco Ireo Paolo & Peri, Giovanni, 2004. "Cities and Cultures," CEPR Discussion Papers 4438, C.E.P.R. Discussion Papers.
  12. Conyon, Martin J, et al, 2002. "The Productivity and Wage Effects of Foreign Acquisition in the United Kingdom," Journal of Industrial Economics, Wiley Blackwell, vol. 50(1), pages 85-102, March.
  13. Arellano, Manuel, 1993. "On the testing of correlated effects with panel data," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 87-97, September.
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Cited by:
  1. Stephan Brunow & Bastian Stockinger, 2013. "Establishments' and Regions' Cultural Diversity as a Source of Innovation: Evidence from Germany," Norface Discussion Paper Series 2013022, Norface Research Programme on Migration, Department of Economics, University College London.

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