Effects of cultural diversity on individual establishments
Abstract
Purpose
International immigration affects the degree of cultural diversity present in a labour force. The purpose of this paper is to focus on the consequences of immigration with respect to the level of cultural diversity by estimating employment functions for individual establishments.
Design/methodology/approach
The theory behind the empirical analyses is based on a “turned around” new economic geography model. The data basis used is a linked employer – employee data set generated by a fusion of the IAB Establishment Panel with the Employment Statistics of Germany, which provides very detailed information about individual workers and establishments. In the empirical part instrumental variables techniques are employed to solve the endogeneity issues involved.
Findings
In the empirical analyses it is shown that employment is lower when the degree of diversity is higher, regarding the revenue of an individual establishment as given. From this result it can be derived under the conditions of monopolistic competition (implying elastic product demand) that the establishment is able to occupy a relatively large part of the market. Finally, this implies relatively high labour demand.
Practical implications
The paper provides clear evidence that cultural diversity in single establishments enhance productivity. The question remains whether different employees interact each another or whether they are separated to different tasks within the establishment. In the latter case productivity gains are due to task-specific knowledge whereas in the former one the interaction of different cultures matters. This issue cannot be answered with the given data set.
Originality/value
Negative effects emerging from employing various cultures (such as language barriers) can be compensated. Thus, hiring foreign born workers does not mean a decline in productivity and a loss in competitiveness.
Keywords
Acknowledgements
The research is part of the NORFACE research programme on migration (Migrant Diversity and Regional Disparity in Europe – MIDI-REDIE project). The authors gratefully acknowledge the many ideas and comments they have received in this context at the ERSA, GfR and NARSC conferences, from the team colleagues Thomas de Graaf, Anette Haas, Peter Nijkamp, Jacques Poot, and others at the internal workshop took place in Helsinki. The authors are also grateful for suggestions by Michael Pflüger, Claus Schnabel, Henri de Groot and two anonymous referees. The responsibility for the analysis and the results remains completely with the authors.
Citation
Brunow, S. and Blien, U. (2014), "Effects of cultural diversity on individual establishments", International Journal of Manpower, Vol. 35 No. 1/2, pp. 166-186. https://doi.org/10.1108/IJM-08-2013-0199
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited