1 Department of Economics, Aarhus School of Business, Aarhus BSS, Aarhus University2 Centre for Research in Integration, Education, Qualifications and Marginalization (CIM), Aarhus School of Business, Aarhus BSS, Aarhus University3 Center for Corporate Performance (CCP), Aarhus School of Business, Aarhus BSS, Aarhus University4 Department of Economics and Business Economics, Aarhus BSS, Aarhus University5 Department of Economics and Business Economics, Aarhus BSS, Aarhus University
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.
Main Research Area:
Comparative Analysis of Enterprise Data & COST Conference, 2010