Does Labor Diversity Affect Firm Productivity?
31 Pages Posted: 11 Nov 2012
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
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