Diversity and Organizational Performance

This paper examines whether a heterogeneous composition of the workforce affects the performance of organizations. Conflict theoretical arguments speak for a negative impact; resource-oriented approaches see a positive effect of diversity. These considerations are examined for cultural and age diversity with data from the JAB (Institute for Employment Research) Establishment Panel and the Establishment History Panel. Furthermore, the analyses are differentiated according to firm size. We examine diversity within the entire workforce as well as the diversity among (highly) skilled workers. For cultural diversity, positive and negative effects are found which differ across both firm-size categories and the diversity of certain workforce groups. Negative productivity effects seem to be restricted to small firms, while positive effects can be found for all firms. For large establishments, the benefits of diversity among the (highly) qualified employees are somewhat stronger. In contrast, there are no significant effects of age diversity on the productivity of German firms.