Does Labour Diversity Affect Firm Performance?

Pierpaolo Parrotta, Dario Pozzoli, Sanne Hiller, Mariola Pytlikova
Aarhus School of Business, Denmark

Using a comprehensive linked employer-employee dataset, we analyze how diversity in cultural background, skills and demographic characteristics affects total factor productivity (TFP) and patenting behaviour of firms in Denmark. Implementing structural estimation of the production function, we find evidence that all three dimensions of labour diversity significantly enhance firm performance as measured by firm TFP. Moreover, we find that larger shares of younger workers facilitate the exploitation of labour force heterogeneity in terms of productivity. Further we provide novel evidence on the effect of diversity on firm innovation as measured by firm patenting activity. Using count data models, we find large and significant effects of skill diversity on patenting activity, whether the effects of other diversity dimensions on innovation are less robust.

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