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Does Labor Diversity Affect Firm Productivity?

Author

Listed:
  • Parrotta, Pierpaolo

    (University of Siena)

  • Pozzoli, Dario

    (Copenhagen Business School)

  • Pytlikova, Mariola

    (CERGE-EI)

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.

Suggested Citation

  • Parrotta, Pierpaolo & Pozzoli, Dario & Pytlikova, Mariola, 2012. "Does Labor Diversity Affect Firm Productivity?," IZA Discussion Papers 6973, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6973
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    More about this item

    Keywords

    communication barriers; total factor productivity; skill complementarity; labor diversity;
    All these keywords.

    JEL classification:

    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • J81 - Labor and Demographic Economics - - Labor Standards - - - Working Conditions
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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