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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)

  • Peter Nijkamp

    ()
    (VU University)

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 Norface Research Programme on Migration, Department of Economics, University College London in its series Norface Discussion Paper Series with number 2012022.

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Date of creation: Jul 2012
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Handle: RePEc:nor:wpaper:2012022

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Keywords: cultural diversity; firm heterogeneity; market size;

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References

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  1. Ozgen, Ceren & Nijkamp, Peter & Poot, Jacques, 2011. "Immigration and Innovation in European Regions," IZA Discussion Papers 5676, Institute for the Study of Labor (IZA).
  2. 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).
  3. Philippe Martin & Thierry Mayer & Florian Mayneris, 2011. "Spatial concentration and plant-level productivity in france," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  4. Pierre-Philippe Combes & Thierry Magnac & Jean-Marc Robin, 2004. "The dynamics of local employment in France," Working Papers 155391, Institut National de la Recherche Agronomique, France.
  5. Stephan Brunow & Uwe Blien, 2011. "Effects of cultural diversity on individual establishments," ERSA conference papers ersa11p187, European Regional Science Association.
  6. Annekatrin Niebuhr, 2010. "Migration and innovation: Does cultural diversity matter for regional R&D activity?," Papers in Regional Science, Wiley Blackwell, vol. 89(3), pages 563-585, 08.
  7. 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.
  8. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  9. Ottaviano, Gianmarco Ireo Paolo & Peri, Giovanni, 2004. "Cities and Cultures," CEPR Discussion Papers 4438, C.E.P.R. Discussion Papers.
  10. 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.
  11. 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).
  12. Arellano, Manuel, 1993. "On the testing of correlated effects with panel data," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 87-97, September.
  13. Niebuhr, Annekatrin, 2000. "Convergence and the effects of spatial interaction," HWWA Discussion Papers 110, Hamburg Institute of International Economics (HWWA).
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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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