Does Labor Diversity Affect Firm Productivity?”, Working Paper 10-12

Using a matched employer-employee data-set, we analyze how workforce diversity in cultural back-ground, education and demographic characteristics affects productivity of firms in Denmark. Implement-ing 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. Hence, the negative effects, coming from com-munication and integration costs connected to a more culturally and demographically diverse workforce, seem to outweigh the positive effects coming from creativity and knowledge spillovers. JEL Classification: C23, J24, L20