Skip to main content

Advertisement

SpringerLink
Log in

Diversity at the Workplace: Whom Does it Benefit?

  • Published:
De Economist Aims and scope Submit manuscript

Abstract

We examine whether firms and their employees benefit from age and educational diversity. At the plant level we explain productivity with workforce characteristics. Age diversity is positively and educational diversity negatively related to total factor productivity. These conclusions are robust to using alternative estimators (fixed effects, GMM, and Olley-Pakes approach). Individual gains are evaluated by estimating earnings equations with job match fixed effects. The explanatory variables include individual demographic variables, plant-level workforce characteristics and variables that describe the individuals’ relative position in the age, education, and gender structure of the plant. Plant-level diversity does not have a significant effect on individual wages. However, being different from others in terms of age, i.e. relational demography, is positively related to wage.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Abowd, J., & Kramarz, F. (2005). Human capital and worker productivity: Direct evidence from linked employer-employee data.Annales d’Econometrie et de Statistique, 79/80, 323–338.

    Google Scholar 

  • Abowd J., Kramarz F., Woodcock S. (2008) Econometric analyses of linked employer-employee data. In: Mátyás L., Sevestre P. (eds) The econometrics of panel data. 3rd ed., Springer, Berlin, pp 727–760

    Chapter  Google Scholar 

  • Ackerberg D., Benkard C. L., Berry S., Pakes A. (2007) Econometric tools for analyzing market outcomes. In: Heckman J. J., Leamer E. E. (eds) Handbook of econometrics (Vol. 6). Elsevier, Amsterdam, pp 4171–4276

    Google Scholar 

  • Alesina A., Ferrara E. (2005) Ethnic diversity and economic performance. Journal of Economic Literature 43: 762–800

    Article  Google Scholar 

  • Andrews M., Schank T., Upward R. (2006) Practical fixed-effects estimation methods for the three-way error-component model. The Stata Journal 6: 461–481

    Google Scholar 

  • Aubert, P., & Crépon, B. (2003). La productivité des salariés âgés: Une tentative d’estimation. Économie Et Statistique, 368, 95–119.

    Article  Google Scholar 

  • Backes-Gellner, U., & Veen, S. (2009). The impact of aging and age diversity on company performance, mimeo, Institute for Strategy and Business Economics, University of Zurich.

  • Bandiera O., Barankay I., Rasul I. (2010) Social incentives in the workplace. Review of Economic Studies 72: 417–458

    Article  Google Scholar 

  • Barrington, L., & Troske, K. R. (2001). Workforce diversity and productivity: An analysis of employer-employee matched data. The Conference Board, Economics Program Working Paper Series, no. 2.

  • Battu H., Belfield C., Sloane P. J. (2003) Human capital spillovers within the workplace: Evidence for Great Britain. Oxford Bulletin of Economics and Statistics 65: 575–594

    Article  Google Scholar 

  • Bond S. (2002) Dynamic panel data models: A guide to micro data methods and practice. Portuguese Economic Journal 1: 141–162

    Article  Google Scholar 

  • Chattopadhyay P. (1999) Beyond indirect and symmetrical effects: The influence of demographic dissimilarity on organizational citizenship behaviour. Academy of Management Journal 42: 273–287

    Article  Google Scholar 

  • Choi J. N. (2007) Group composition and employee creative behaviour in a Korean electronics company: Distinct effects of relational demography and group diversity. Journal of Occupational and Organizational Psychology 80: 213–234

    Article  Google Scholar 

  • Cornelissen T. (2008) The Stata command felsdvreg to fit a linear model with two high-dimensional fixed effects. Stata Journal 8: 170–189

    Google Scholar 

  • Daveri F., Maliranta M. (2007) Age, seniority and labour cost. Economic Policy 49: 118–175

    Google Scholar 

  • DiTomaso N., Post C., Parks-Yancy R. (2007) Workforce diversity and inequality: Power, status, and numbers. Annual Review of Sociology 33: 473–501

    Article  Google Scholar 

  • Dostie, B. (2011). Wages, productivity and aging. De Economist, 159. doi:10.1007/s10645-011-9166-50.

  • Foster L., Haltiwanger J., Syverson C. (2008) Reallocation, firm turnover, and efficiency: selection on productivity or profitability?. American Economic Review 98: 394–425

    Article  Google Scholar 

  • Göbel, C., & Zwick, T. (2009). Age and productivity—evidence from linked employer employee date. ZEW Discussion Paper no. 09–020.

  • Göbel, C., & Zwick, T. (2010). Which personnel measures are effective in increasing productivity of older workers? ZEW Discussion Paper no.10–069.

  • Griliches Z., Mairesse J. (1998) Production functions: The search for identification. In: Strøm S. (eds) Econometrics and economic theory in the twentieth century: The Ragnar Frisch Centennial Symposium. Cambridge University Press, Cambridge, pp 169–203

    Chapter  Google Scholar 

  • Grund C., Westergård-Nielsen N. (2008) Age structure of the workforce and firm performance. International Journal of Manpower 29: 410–422

    Article  Google Scholar 

  • Harrison D. A., Klein K. J. (2007) What’s the difference? Diversity constructs as separation, variety, or disparity in organizations. Academy of Management Review 32: 1199–1228

    Article  Google Scholar 

  • Hellerstein J. K., Neumark D., Troske K. R. (1999) Wages, productivity, and worker characteristics: Evidence from plant-level production functions and wage equations. Journal of Labor Economics 17: 409–446

    Article  Google Scholar 

  • Heyman F. (2005) Pay inequality and firm performance: Evidence from matched employer-employee data. Applied Economics 37: 327

    Article  Google Scholar 

  • Horwitz S. K., Horwitz I. B. (2007) The effects of team diversity on team outcomes: A meta-analytic review of team demography. Journal of Management 33: 987–1015

    Article  Google Scholar 

  • Ilmakunnas P., Maliranta M. (2005) Technology, worker characteristics, and wage-productivity gaps. Oxford Bulletin of Economics and Statistics 67: 623–645

    Article  Google Scholar 

  • Ilmakunnas P., Maliranta M., Vainiomäki J. (2004) The roles of employer and employee characteristics for plant productivity. Journal of Productivity Analysis 21: 249–276

    Article  Google Scholar 

  • Ilmakunnas P., van Ours J., Skirbekk V., Weiss M. (2010) Age and productivity. In: Garibaldi P., Oliveira-Martins J., van Ours J. van (eds) Ageing, health, and productivity: The economics of increased life expectancy. Oxford University Press, Oxford, pp 133–240

    Google Scholar 

  • Ilmakunnas S., Takala M. (2005) Promoting employment among ageing workers: Lessons from successful policy changes in Finland. Geneva Papers on Risk and Insurance—Issues and Practice 30: 674–692

    Article  Google Scholar 

  • Iranzo S., Schivardi F., Tosetti E. (2008) Skill dispersion and firm productivity: An analysis with employer-employee matched data. Journal of Labor Economics 26: 247–286

    Article  Google Scholar 

  • Jackson S. E., Joshi A., Erhardt N. L. (2003) Recent research on team and organizational diversity: SWOT analysis and implications. Journal of Management 29: 801–830

    Google Scholar 

  • Kandel E., Lazear E. (1992) Peer pressure in partnerships. Journal of Political Economy 100: 801–817

    Article  Google Scholar 

  • Kremer M. (1993) The O-ring theory of economic development. Quarterly Journal of Economics 108: 551–575

    Article  Google Scholar 

  • Lallemand T., Plasman R., Rycx F. (2004) Intra-firm wage dispersion and firm performance: Evidence from linked employer-employee data. Kyklos 57: 533–558

    Article  Google Scholar 

  • Lazear E. P. (1999) Globalisation and the market for team-mates. Economic Journal 109: C15–C40

    Article  Google Scholar 

  • Leonard J., Levine D. I., Joshi A. (2004) Do birds of a feather shop together? The effects on performance of employees’ similarity with one another and with customers. Journal of Organizational Behavior 25: 731–754

    Article  Google Scholar 

  • Levinsohn J., Petrin A. (2003) Estimating production functions using inputs to control for unobservables. Review of Economic Studies 70: 317–341

    Article  Google Scholar 

  • Malmberg, B., Lindh, T., & Halvarsson, M. (2008). Productivity consequences of workforce ageing—stagnation or a Horndal effect? Population and Development Review, Supplement: Population Aging, Human Capital Accumulation, and Productivity Growth (pp. 238–256).

  • Mas A., Moretti E. (2009) Peers at work. American Economic Review 99: 112–145

    Article  Google Scholar 

  • Navon, G. (2009). Human capital spillovers in the workplace: Labor diversity and productivity. Bank of Israel, Research Department, Discussion paper no. 5.

  • Olley G. S., Pakes A. (1996) The dynamics of productivity in the telecommunications equipment industry. Econometrica 64: 1263–1297

    Article  Google Scholar 

  • Ostroff C., Atwater L. E. (2003) Does whom you work with matter? Effects of referent group gender and age composition on managers’ compensation. Journal of Applied Psychology 88: 725–740

    Article  Google Scholar 

  • Parrotta, P., Pozzoli, D., & Pytlikova, M. (2010). Does labor diversity affect firm productivity? (pp. 10–12). Aarhus School of Business, Aarhus University, Working Paper.

  • Pelled L. H., Eisenhardt K. M., Xin K. R. (1999) Exploring the black box: an analysis of work group diversity, conflict, and performance. Administrative Sciences Quarterly 44: 1–28

    Article  Google Scholar 

  • Riordan C. M. (2000) Relational demography within groups: past developments, contradictions, and new directions. Research in Personnel and Human Resource Management 19: 131–173

    Article  Google Scholar 

  • Riordan C. M., Wayne J. H. (2008) A review and examination of demographic similarity measures used to assess relational demography within groups. Organizational Research Methods 11: 562–592

    Article  Google Scholar 

  • Roodman D. (2009) A note on the theme of too many instruments. Oxford Bulletin of Economics and Statistics 71: 135–158

    Article  Google Scholar 

  • Roodman D. (2009) How to do xtabond2: an introduction to difference and system GMM in Stata. Stata Journal 9: 86–136

    Google Scholar 

  • Van Biesebroeck, J. (2008). Wage and productivity premiums in Sub-Saharan Africa. In S. Bender, J. Lane, K. Shaw, F. Andersson, & T. von Wachter (Eds.), The analysis of firms and employees: Quantitative and qualitative approaches (pp. 345–371). University of Chicago Press.

  • van Ours, J. C., & Stoeldraijer, L. (2011). Age, wage and productivity in Dutch manufacturing, De Economist, 159. doi:10.1007/s10645-011-9159-4.

  • Weiss, M. (2007). Are age-diverse work teams better? MEA Discussion Paper 150-07, University of Mannheim.

  • Williams K. Y., O’Reilly C. (1998) Demography and diversity in organizations: A review of 40 years of research. Research in Organizational Behavior 20: 77–140

    Google Scholar 

  • Winter-Ebmer R., Zweimüller J. (1999) Intra-firm wage dispersion and firm performance. Kyklos 52: 555–572

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Aalto University School of Economics and HECER, PO Box 21240, 00076, Aalto, Helsinki, Finland

    Pekka Ilmakunnas

  2. Labour Institute for Economic Research, Pitkänsillanranta 3A, 00530, Helsinki, Finland

    Seija Ilmakunnas

Authors
  1. Pekka Ilmakunnas
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Seija Ilmakunnas
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Pekka Ilmakunnas.

Additional information

Earlier versions of this paper have been presented at CAED conference in Budapest, EALE Conference in Tallinn, Workshop on Ageing Workforces in Louvain-la-Neuve, Annual Meeting of the Finnish Economic Association in Turku, and in a seminar at the Labour Institute for Economic Research. We are grateful to the participants and two referees for comments.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Ilmakunnas, P., Ilmakunnas, S. Diversity at the Workplace: Whom Does it Benefit?. De Economist 159, 223–255 (2011). https://doi.org/10.1007/s10645-011-9161-x

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10645-011-9161-x

Keywords

JEL Classification

Search

Navigation