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Does Labor Diversity Affect Firm Productivity?

  • Parrotta, Pierpaolo

    ()

    (ICN Business School)

  • Pozzoli, Dario

    ()

    (Copenhagen Business School)

  • Pytlikova, Mariola

    ()

    (CERGE-EI)

Using a matched employer-employee data-set, we analyze how workforce diversity in terms of cultural background, education and demographic characteristics affects the productivity of firms in Denmark. Implementing a structural estimation of the firms' production function (Ackerberg et al. 2006), we find that labor diversity in education significantly enhances a firm's value added. Conversely, diversity in ethnicity and demographics induces negative effects on firm productivity. Therefore, the negative effects, which are derived from the communication and integration costs associated with a more culturally and demographically diverse workforce, seem to outweigh the positive effects of creativity and knowledge spillovers.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6973.

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Length: 31 pages
Date of creation: Oct 2012
Date of revision:
Publication status: published as 'Labor Diversity and Firm Productivity' in: European Economic Review, Volume 66, 2014, 144–179.
Handle: RePEc:iza:izadps:dp6973
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