Is workforce diversity good for efficiency? An approach based on the degree of concavity of the technology

Abstract

Purpose – The purpose of this paper is to answer the question of workforce diversity and efficiency. It departs from the rather ad hoc approach used in most recent empirical papers exploiting firm-level evidence, and suggests focusing on the estimation of the degree of concavity of the production function. Design/methodology/approach – Workforce diversity is optimal when the technology displays concavity in the share of workers considered (e.g. decreasing marginal contribution of rising shares of more productive/skilled workers). What is also shown in this paper is that a generalised version of the production function à-la-Hellerstein-Neumark (HN) – where workforce diversity is captured via an index of labour shares – is suitable for estimating the concavity of the technology, and thus for assessing the case for/against workforce diversity. Findings – The paper contains an application to two panels of Belgian firms covering the 1998-2012 period. The main empirical result is that of an absence of strong evidence that age, gender or educational diversity is good or bad for efficiency. Originality/value – The key idea of the paper is that the degree of convacity/convexity in the share of workers considered of firm-level technology and the desirability/efficiency of workforce diversity are intrinsically connected. It is also that a non-linear/CES version of the HN labour-quality index can be used in empirical work to assess the degree of concavity/convexity of the technology and quantify the efficiency gains/losses of workforce diversity.