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

Tinbergen Institute Discussion Paper No. 12-082/3

25 Pages Posted: 10 Aug 2012

See all articles by Stephan Brunow

Stephan Brunow

Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics; Tinbergen Institute

Date Written: August 9, 2012

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 labor 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.

Keywords: cultural diversity, firm heterogeneity, market size

JEL Classification: J15, L11, L25

Suggested Citation

Brunow, Stephan and Nijkamp, Peter, The Impact of a Culturally Diverse Workforce on Firms' Market Size: An Empirical Investigation on Germany (August 9, 2012). Tinbergen Institute Discussion Paper No. 12-082/3, Available at SSRN: https://ssrn.com/abstract=2127099 or http://dx.doi.org/10.2139/ssrn.2127099

Stephan Brunow (Contact Author)

Government of the Federal Republic of Germany - Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

HOME PAGE: http://www.iab.de

Peter Nijkamp

VU University of Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands
+31 20 4446091 (Phone)
+31 20 4445611 (Fax)

Tinbergen Institute

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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