Working Papers, Department of Economics, Aarhus School of Business, University of Aarhus
Does Labor Diversity Affect Firm Productivity?
(), Dario Pozzoli
() and Mariola Pytlikova
Abstract: Using an employer-employee dataset, we analyze how
diversity in cultural background, skills and demographic characteristics
affects total factor productivity (TFP) of firms in Denmark. Implementing
structural estimation of firms’ production function, we find evidence that
labor diversity in skills/education significantly enhances firm performance
as measured by firm TFP. Conversely, diversity in demographics and
ethnicity brings mixed results – both dimensions of workforce diversity
have either no or negative effects on firm TFP. Hence, it seems as if the
negative effects, coming from communication and integration costs connected
to a more demographically and culturally diverse workforce, counteract the
positive effects of diversity on firm TFP, coming from creativity and
knowledge spillovers. However, we find that ethnic diversity is valuable
for firms operating in industries characterized by above-average trade
openness, giving support to the hypothesis that an ethnically diverse
workforce provides information and access to global markets.
Keywords: Labor diversity; skill complementarities; communication barriers; total factor productivity; (follow links to similar papers)
JEL-Codes: C23; J24; L20; (follow links to similar papers)
52 pages, December 1, 2010
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