Does Labor Diversity Affect Firm Productivity?

31 Pages Posted: 11 Nov 2012

See all articles by Pierpaolo Parrotta

Pierpaolo Parrotta

Aarhus University - School of Business and Social Sciences

Dario Pozzoli

Aarhus University - School of Business and Social Sciences

Mariola Pytliková

Central European Labour Studies Institute (CELSI); Technical University of Ostrava - Faculty of Economics; University College London - CReAM - Centre for Research and Analysis of Migration; IZA Institute of Labor Economics; Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Abstract

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.

Keywords: labor diversity, skill complementarity, communication barriers, total factor productivity

JEL Classification: J15, J16, J24, J61, J81, L20

Suggested Citation

Parrotta, Pierpaolo and Pozzoli, Dario and Pytliková, Mariola, Does Labor Diversity Affect Firm Productivity?. IZA Discussion Paper No. 6973. Available at SSRN: https://ssrn.com/abstract=2173663

Pierpaolo Parrotta (Contact Author)

Aarhus University - School of Business and Social Sciences ( email )

Nordre Ringgade 1
Aarhus C, DK-8000
Denmark

Dario Pozzoli

Aarhus University - School of Business and Social Sciences ( email )

Nordre Ringgade 1
Aarhus C, DK-8000
Denmark

Mariola Pytliková

Central European Labour Studies Institute (CELSI) ( email )

Zvolenská 29
Bratislava, 82109
Slovakia

Technical University of Ostrava - Faculty of Economics ( email )

Sokolska 33
Ostrava 1, 701 21
Czech Republic

University College London - CReAM - Centre for Research and Analysis of Migration ( email )

Drayton House
30 Gordon Street
London, WC1H 0AX
United Kingdom

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

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