Is Workforce Diversity Good for Efficiency?

To answer the question of workforce diversity and efficiency, this paper departs from the approach used in most recent empirical papers exploiting firm-level evidence, where output is regressed on traditional inputs plus an index of diversity (Parrotta et al., 2012). We suggest addressing the question by adopting a more structural framework. The idea is to root the empirical strategy applied to firm-level data in the theoretical literature on population heterogeneity/stratification and growth (Bénabou, 1994). Essentially, what that literature suggests is that diversity is optimal when the technology displays concavity in the share of workers considered (e.g. decreasing marginal contribution of rising shares of more productive/skilled workers). What is also shown in this paper is that a production function à-la-Hellerstein-Neumark — where workforce diversity is captured via an index of labour shares — is suitable for estimating the concavity of the technology, and thus for assessing the case for/against workforce diversity. Finally, the paper contains an application of this Bénabou-Hellerstein-Neumark framework to two panels of Belgian firms covering the 1998-2012 period. The main result is that of an absence of strong evidence that age, gender or educational diversity is good or bad for efficiency.