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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.

Suggested Citation

  • Parrotta, Pierpaolo & Pozzoli, Dario & Pytlikova, Mariola, 2014. "Labor diversity and firm productivity," European Economic Review, Elsevier, vol. 66(C), pages 144-179.
  • Handle: RePEc:eee:eecrev:v:66:y:2014:i:c:p:144-179
    DOI: 10.1016/j.euroecorev.2013.12.002
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    Cited by:

    1. Frédéric Docquier & Riccardo Turati & Jérôme Valette & Chrysovalantis Vasilakis, 2016. "Multiculturalism and Growth: Skill-Specific Evidence from the Post-World War II Period," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2016028, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    2. Asongu, Simplice A & Nwachukwu, Jacinta C., 2016. "Unjust Enrichment from Official Corruption in Africa: Theory and Model on how Lenders have benefited," MPRA Paper 75416, University Library of Munich, Germany.
    3. Alberto Alesina & Johann Harnoss & Hillel Rapoport, 2016. "Birthplace diversity and economic prosperity," Journal of Economic Growth, Springer, vol. 21(2), pages 101-138, June.
    4. Jürgen Bitzer & Erkan Gören & Sanne Hiller, 2014. "International Knowledge Spillovers: The Benefits from Employing Immigrants," Working Paper Series in Economics 323, University of Lüneburg, Institute of Economics.
    5. Nathan, Max, 2014. "The wider economic impacts of high-skilled migrants: a survey of the literature for receiving countries," LSE Research Online Documents on Economics 57370, London School of Economics and Political Science, LSE Library.
    6. Parrotta, Pierpaolo & Pozzoli, Dario & Sala, Davide, 2016. "Ethnic diversity and firms' export behavior," European Economic Review, Elsevier, vol. 89(C), pages 248-263.
    7. Jürgen Bitzer & Erkan Gören & Sanne Hiller, 2015. "Absorption of Foreign Knowledge: Firms’ Benefits of Employing Immigrants," Working Papers V-386-15, University of Oldenburg, Department of Economics, revised Oct 2015.
    8. Trax, Michaela & Brunow, Stephan & Suedekum, Jens, 2015. "Cultural diversity and plant-level productivity," Regional Science and Urban Economics, Elsevier, vol. 53(C), pages 85-96.
    9. Max Nathan, 2014. "The wider economic impacts of high-skilled migrants: a survey of the literature for receiving countries," IZA Journal of Migration, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-20, December.
    10. Masayuki Morikawa, 2014. "What Types of Company Have Female and Foreign Directors?," CAMA Working Papers 2014-47, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    11. Nathan, Max, 2014. "Top Team Diversity and Business Performance: Latent Class Analysis for Firms and Cities," IZA Discussion Papers 8462, Institute for the Study of Labor (IZA).
    12. Magnus Lodefalk, 2016. "Temporary expats for exports: micro-level evidence," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(4), pages 733-772, November.
    13. Marino, Marianna & Parrotta, Pierpaolo & Pozzoli, Dario, 2016. "Educational diversity and knowledge transfers via inter-firm labor mobility," Journal of Economic Behavior & Organization, Elsevier, vol. 123(C), pages 168-183.
    14. Masayuki Morikawa, 2014. "What Types of Companies Have Female and Foreign Directors?," AJRC Working Papers 1404, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
    15. Ghosh, Anirban & Mayda, Anna Maria & Ortega, Francesc, 2014. "The Impact of Skilled Foreign Workers on Firms: An Investigation of Publicly Traded U.S. Firms," IZA Discussion Papers 8684, Institute for the Study of Labor (IZA).
    16. Mette Foged & Giovanni Peri, 2016. "Immigrants' Effect on Native Workers: New Analysis on Longitudinal Data," American Economic Journal: Applied Economics, American Economic Association, vol. 8(2), pages 1-34, April.
    17. Marchal, Léa & Nedoncelle, Clément, 2017. "How foreign-born workers foster exports," Kiel Working Papers 2071, Kiel Institute for the World Economy (IfW).

    More about this item

    Keywords

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

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • J82 - Labor and Demographic Economics - - Labor Standards - - - Labor Force Composition
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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