26 

2 The impact of diversity: A review of

the evidence

This chapter examines the evidence on the economic impact of diversity,

which yields a rather complicated picture. Contrary to the often assumed,
direct positive impact of diversity on business performance, research shows
that at the firm level, the business case for diversity is not particularly
strong. However, while the impact of diversity might be small, there is a
strong economic argument against discrimination and non-inclusion based
on the sizeable cost associated with it. Finally, the chapter notes ethical
reasons for fostering a just and equitable labour market alongside the
economic argument for diversity.

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With increasingly diverse societies, there has been a strong interest in better understanding whether and
how diversity affects economic outcomes. Findings of a survey of Human Resource professionals across
a range of OECD countries (see Box 2.1 for more detail) also show that participating firms have become
increasingly concerned with this topic; around two in three think that the topic of diversity management has
become more important in their firm in the past five years.
There is a large, multi-disciplinary interest on the impact of diversity, including the field of management
and HR, psychology and economics, including labour economics, trade and the political economy
literature. Table 2.1 highlights the main channels proposed in the literature on how diversity could positively
or negatively impact outcomes at a firm level or affect societies more broadly.
This chapter reviews studies that analyse the economic impact of diversity on the macro (country), meso
(region) and micro (firm or team) levels, as diversity is likely to be relevant on all these levels but through
different mechanisms and with different outcomes.1 In addition, it provides a short overview of the literature
on how diversity may ‘spill over’ and impact social cohesion and preferences for redistribution.

Table 2.1. Possible channels of influence of diversity on economic outcomes

Potential positive channels Potential negative channels
Within firm
Creativity and innovative thinking: teams with diverse backgrounds, Lower productivity: e.g. due to communication difficulties
experiences and ideas
Positive self-selection: unobservable characteristics such as grit and More intra-group conflict: e.g. due differences in worldviews,
determination to overcome additional hurdles, e.g. labour market discrimination
discrimination; positive selection of who migrates
Trade facilitation and new markets: easier access to markets abroad,
better understanding of diverse customer base, new clients
‘Spillovers’
Increased availability of goods and services: e.g. catering to needs Lower preferences for redistribution: e.g. taxation, investments in
and consumption patterns of diverse clients public goods
Increased social cohesion: through stronger labour market inclusion Reduced trust and social interactions: e.g. perceptions of whether
and interactions at the workplace others can be generally trusted

Source: Based on (Ozgen, 2018[1]).

Most studies discussed in this section discuss the impact of migrant diversity and gender, which reflects
both the interest of the public debate as well as the focus of the literature. Where possible, other forms of
diversity (notably age and educational background) are also included. The majority of these studies has
focused on Western European and North American countries and looks at the micro level impact, i.e. on
the level of firms, teams and executive boards.

Caveats when quantifying diversity and its impacts

Measuring diversity remains a challenge. On the one hand, this is due to data limitations (e.g. on ethnic
diversity, see also Balestra and Fleischer (2018[2])), on the other hand, quantifying diversity is not an easy
endeavour given the multiple groups any person belongs to (gender, ethnicity, age, religion etc.).
Therefore, economic models of cultural diversity mostly focus on only one dimension.
Furthermore, assessing the economic impact is difficult for two main reasons. First, the potential impact of
unobserved heterogeneity that may simultaneously influence the outcome variable and ethnic diversity at
regional or firm levels is likely to bias the estimated effect sizes of diversity. Panel data fixed effects models,
which often help accounting for unobserved heterogeneity, do not work for firm-level studies due to the
small within-firm variation. Second, research that can identify causal links between diversity and economic
outcomes, e.g. through instrumental variables (IV) estimation, is limited.

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Box 2.1. The OECD-Dauphine University HR Survey

The OECD, together with the Paris Dauphine University and with the support of national HR
Associations, conducted an online survey in 2017/18 to gather evidence on the experiences and views
of HR professionals regarding diversity practices in their firms. The supporting HR Associations included
the Australian HR Institute (AHRI), Chartered Professionals in Human Resources (CPHR, Canada) and
Human Resources Professionals Association (HRPA, Canada), Association Nationale des DRH
(ANDRH, France), Deutsche Gesellschaft für Personalführung (DGFP, Germany), Associazione
Italiana per la Direzione del Personale (AIDP, Italy), HR Norge (Norway), Associação Portuguesa de
Gestão das Pessoas (APG, Portugal) and Fundación para el Desarrollo de la Función de Recursos
Humanos Fundipe (Spain).
The survey was shared by the country’s main national HR Association and in total around 2 400 HR
professionals in eight OECD countries (Australia, Canada, France, Germany, Italy, Norway, Portugal
and Spain) participated. Around 50% of respondents were from Canada, whereas the number of
respondents was around 400 for Australia and between 100 and 150 for European OECD countries.
The survey asked whether companies had introduced diversity measures, and if so, what kind of
approaches they had chosen and which groups they were targeting. In addition, respondents were
asked about the motivation behind these policies, whether outcomes where monitored and evaluated,
and what kind of obstacles they had experienced. Lastly, the survey included questions on what kind
of support they would like to receive for implementing diversity policies in their firms and what areas of
diversity policies should receive more attention in the future.
Considering that the survey was only sent to members of the respective HR Associations and that
response rates were low overall, the findings do not provide a representative picture of HR managers
or company practices in a given country. Survey findings should be interpreted as giving a first indication
of how HR professionals who are likely to be rather open towards diversity view these issues. However,
it is clear that more research in this field is needed given the current absence of representative, cross-
national data.

The impact of diversity on innovation

Most studies consider either how the shares of foreign graduate students/inventors impact innovation in a
given field or they construct a fractionalisation index based on country of birth or nationality, that gives an
indication of the workforce’s diversity overall. 2 Studies mostly consider patent applications or patents per
capita as a proxy for innovation. Table 2.2 provides a snapshot of the studies discussed in the following.
One study on the country-level impact is provided by Chellaraj, Maskus and Mattoo (2008[3]), analysing
the impact of the share of foreign graduate students on patent applications, patent grants and non-
university patent grants in the United States from 1963-2001. They find a positive impact in the order of
4.5 percent, 6.8 percent and 5.0 percent, respectively for a 10 percent increase in the foreign graduate
students as a percentage of total graduate students. Another study confirms a positive impact of foreign-
born college graduates, post-college degree holders, and scientists and engineers in the United States.
Particularly the last group is found to boost innovation considerably (Hunt and Gauthier-Loiselle, 2010[4]).
At the level of US States, they estimate that a 1-percentage point increase in the share of foreign-born
STEM college graduates in the overall graduate population boosts patents per capita by 9-18 percent.
In Europe, research has also found a positive relationship between innovation and the share of the foreign-
born population on a regional level (Ozgen, Nijkamp and Poot, 2012[5]). In addition, the composition of
migrants in terms of different countries of origin is found to be a more important driver for innovation than
the regional population size of foreign-born. Another study including around 200 European regions

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suggests that the impact of migrant diversity on innovation is positive and shows an inverse U-shape
relationship. This suggests that there may be an ‘optimal level’ of migrant diversity when it comes to
innovation (Dohse and Gold, 2014[6]).
For Italy, however, one study has found a negative effect of migrant diversity. After distinguishing between
low and high-skilled workers, the authors find a negative impact of low-skilled workers on patents; a 1-
percentage point increase of low skilled immigrants leads to 0.2 percent decrease in innovation (Bratti and
Conti, 2014[7]). For high-skilled migrant workers, their findings are not significant. They argue that this may
reflect that immigrants’ skills and education often remains underutilised in the Italian labour market. For
other countries, however, there is evidence that benefits of diversity for innovation are more apparent in
sectors employing relatively more skilled immigrants (see for example Ozgen C, Nijkamp P and Poot
(2013[8]) for the Netherlands and Brunow and Stockinger (2013[9]) for Germany).
Relatively few studies look at different elements of diversity. Research by McGuirk and Jordan (2012[10]) is
a notable exception, exploring the link between innovation and diversity of educational background,
migrant diversity and age diversity in Ireland. They find that diversity in education and nationality have a
positive impact on product innovation for a firm. For process innovation, only diversity in nationality has a
significant, negative impact. Age diversity is not found to have a significant impact.
Different results are found for Denmark, where age diversity is associated with a negative effect on
innovation, which is defined as the introduction of a new product or service (Østergaard, Timmermans and
Kristinsson, 2011[11]). More diversity in education and gender appears to boost innovation while the impact
of migrant diversity is not significant. Parrotta, Pozzoli and Pytlikova (2014[12]) find for Denmark that
diversity in educational background has no impact on patent applications, whereas diversity in country of
origin among employees has a positive impact.

Table 2.2. Stylised findings on diversity and innovation

Country Study Diversity measure Outcome measure and effect
United States Chellaraj et al. (2008) Foreign-born graduate Patent applications (+); Patent grant (+); Non-
students university patent grants (+)
Hunt and Gautier- Foreign-born STEM Patent per capita (+)
Loiselle (2010) graduates
12 western European countries Ozgen et al. (2012) Diversity in nationality Patent applications (+)
(170 regions)
EU27 (200 regions) Dohse and Gold (2014) Diversity in nationality Patent applications (+)
ITA (103 regions) Bratti and Conti (2014) Diversity in nationality Patent applications (-)
IRE (app. 1000 firms in 26 McGuirk and Jordan Product innovation & process innovation (+) & (-)
counties) (2012) Diversity in nationality (+) & (/)
Diversity in education (/) & (/)
Diversity in age
DEN (1648 Danish firms) Østergaard et al. (2011) Introduction of a new product or service: (/)
Diversity in country of birth
Diversity in education (+)
Diversity in age (/)
More balanced gender (+)
composition
GER (12 000 firms) Brunow and Stockinger Diversity in country of birth High-skilled (+)
(2013) Low-skilled (/)
DEN (12 000 firms) Parrotta et al. (2014) Patent applications
Diversity in education (/)
Diversity in country of birth (+)
Note: (+) = impact is positive and statistically significant; (-) = impact is negative and statistically significant; (/) = impact is statistically insignificant.
Source: Based on Ozgen (2018).

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The impact of diversity on firm performance

Research on firm performance has assessed how diversity in executive boards affects profitability, how
performance within teams may change and how higher diversity within firms influences productivity and
wages. Much of this literature therefore tests the underlying assumption that more diverse companies can
make better decisions and products because women and minorities differ in their knowledge, experiences
or management styles and therefore can bring new insights and perspectives.

Diversity in executive boards and its impact on profitability

Table 2.3 shows that most studies on board diversity suggest that the relation between board diversity and
performance is not significant or only very weakly positive (for meta-studies on gender board diversity, see
Post and Byron (2015[13]) and Pletzer et al. (2015[14]). For example, Post and Byron (2015[13]) assessed
140 studies in a meta-study and found that on average, having more female directors is positively related
to returns on assets and returns on equity, but that the effect was very small. The average correlation was
.05, i.e. gender board diversity explained around two-tenths of the 1% variance in company performance,
while on other indicators, such as stock performance and shareholder returns, the effect was not
statistically significant. Studies that have assessed the impact of changes in legislation, e.g. by looking at
the impact of newly introduced gender quotas for boards, also tend to find that a subsequently higher share
of women does not have a significant effect on firm performance (see for example Ferrari et al. (2016[15])
for Italy.
On the contrary, Adams and Ferreira (2009[16]) found that female directors had a significant effect on board
inputs and firm outcomes in a sample of US firms. Female directors appear to have better attendance
records than male directors and the attendance of male directors improves following the entry of female
members in the board of directors. Furthermore, gender-diverse boards allocate more effort to monitoring,
while CEO compensation is found to be more sensitive to stock performance. On average, however, more
gender equal boards have a negative effect on corporate performance. The authors argue that this may
be linked to too much board monitoring. They find that more gender equal boards have a beneficial effect
in companies where shareholder rights are weak and more monitoring is thus beneficial, while the impact
is negative for companies with strong shareholder rights. This shows that the relationship between more
gender balanced boards and firm performance are complex and may impact different areas of performance
differently.
Overall, however, the literature does not allow to make a strong business case; neither for nor against
increasing the share of women in company boards. Carter et al. (2010[17]) present similar results for the
impact of ethnic diversity in boards in the United States, which is found to have no significant impact on
firm performance.
Why this is the case is difficult to determine. There is some evidence suggesting that a positive impact of
more gender equal boards is stronger in countries where gender equality is generally higher (Post and
Byron, 2015[13]). This can be seen as an indication that board diversity is more than a ‘numbers game’, but
that the context and gender stereotypes matter, for example whether women or minorities on boards have
a de facto equal standing when it comes to decision making. If they do not, and are there as a token
gesture or simply to comply, perhaps reluctantly, with legislation, then their presence on a board is likely
to have little impact. Moreover, much of the literature rests on the assumption that more diverse boards
can make better decisions because women and minorities differ in their knowledge, experiences or
management styles and therefore can bring new insights and perspectives. Particularly for board positions,
however, members may be diverse on aspects such as gender or ethnicity, but in other aspects such as
educational background, values or professional experiences they might be very similar, hence not always
adding much in terms of new perspectives or novel ideas.

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Table 2.3. Stylised findings on diverse executive boards and firm performance
Country Study Diversity measure Outcome measure and effect
Meta-analysis of 140 studies in 35 Post and Byron Share of female directors in boards Returns on assets (+)
countries (including non-OECD) (2015) Returns on equity (+)
Market performance (/)
Meta-analysis of 20 studies in 16 Pletzer et al. Share of female directors in boards Ratio of the firm's market value to its
countries (including non-OECD) (2015) book value (Tobin’s Q) (/)
Returns on assets (/)
Returns to equity (/)
US (2000 firms) Adams and Share of female directors in boards Ratio of the firm's market value to its
Ferreira (2009) book value (Tobin’s Q) (-)
Returns to assets (-)
Attendance (+)
US (650 firms) Carter et al. Share of female directors and ethnic Return on assets (/)
(2010) minority directors on boards Ratio of the firm's market value to its
book value (Tobin’s Q) (/)

Note: (+) = impact is positive and statistically significant; (-) = impact is negative and statistically significant; (/) = impact is statistically insignificant.
Source: Based on Ozgen (2018).

Diversity, firm productivity and team performance

Studies on how diversity affects productivity at the firm-level, using representative data are rare. Trax,
Brunow and Suedekum (2015[18]) show for Germany that migrant diversity has a positive impact on firm
productivity, particularly strongly within larger manufacturing plants and less so in service establishments,
while the share of migrants, either at the firm level or in the region, has no effect. A similar study for
Denmark finds small negative effects on productivity while gender and age are not found to have an impact
(Parrotta, Pozzoli and Pytlikova, 2014[12]).
Much of the literature on team performance and diversity belongs to the field of social psychology and
management studies and assesses how diverse teams operate at the firm level. Most of the studies are
survey-based and usually focus only on specific, usually large firms. This means that findings are not
representative of all sectors or even firms within that sector. However, given the breadth of studies in this
area, findings can be interpreted as giving an indication on the impact of diversity on team performance.
A number of studies make a difference between ‘highly job-related diversity’, such as educational
background, job position or function in the company, and diversity aspects that are ‘less job-related’,
e.g. gender, ethnicity or age. Measurement of team performance includes multiple indicators, such as
efficiency, creativity, innovation and productivity.
Findings are somewhat mixed, but impacts of gender, ethnicity or age diversity are found to be either very
small or insignificant. Some meta-analyses find no significant impact of gender composition, ethnicity or
age on team performance (Horwitz and Horwitz, 2007[19]; Schneid et al., 2016[20]), while others find
negative, but very small impacts (Bell et al., 2011[21]; Joshi and Roh, 2009[22])3. Most studies do, however,
find a positive relationship between team performance and having teams with different professional
backgrounds and other task-related characteristics (Bell et al., 2011[21]; Horwitz and Horwitz, 2007[23]; Joshi
and Roh, 2009[22]).
Overall, these findings from meta-analyses seem to suggest that team diversity in terms of gender, ethnicity
or age do not matter much for team performance. However, there is some evidence that demonstrates the
importance of situational settings by examining under what specific conditions diversity dynamics may
unfold and how. Joshi and Roh (2009[22]) show in a more fine-grained analysis that contextual factors, such
as type of industry and the relative share of women or ethnic minorities in these teams have a moderating
impact on team performance. Accounting for these characteristics generally increases the size of the

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relationship between team performance and diversity and therefore partially explains the mixed results of
individual studies. For example, Joshi and Roh (2009[22])find that higher shares of women and ethnic
minorities have a small negative impact in majority male or white teams, but a positive impact when teams
are more balanced. This may suggest that when women or ethnic minorities are perceived as ‘newcomers’
rather than ‘just another’ colleague, more intra-group conflict may arise or minorities may have difficulties
in being heard and taken seriously. In addition, Gonzalez and Denisi (2009[24]) show that in different
branches of a large US company the ‘diversity climate’, i.e. whether employees perceive their workplace
as open towards diversity, has a positive impact on the branch’s performance. For France, there is also
evidence that biased managers have a negative impact on how ethnic minorities perform on the job. When
assigned to biased managers (measured by their outcomes in implicit association tests) in a French
grocery store chain, ethnic minorities were found to be absent more often, spend less time at work, scan
items more slowly and take more time between customers. This appears to be linked to biased managers
interacting less with minorities, thereby leading minorities to exert less effort (Glover, Pallais and Pariente,
2017[25]).
Thus, organisational practices, diversity management and non-discrimination policies can be important
levers to make the most of a diverse workforce. Gaining a better understanding on how contextual factors
mediate the impact of diverse teams is therefore an important area for future research, but due to the
limited availability of data on such micro-level aspects of team composition and management, these
studies will most likely have to focus on individual firms rather than a representative sample.

The macro-economic impact of diversity

Assessing the macro-economic impact of diversity is not straightforward. A priori, there are no strong
reasons that population diversity itself would have a macro-economic effect.
Research on how population diversity affects macro-economic outcomes has largely focused on the impact
of immigrant diversity and mostly find a positive impact for high-income countries. The majority of country-
specific studies focuses on the United States.
A study on 195 countries shows that the diversity of immigrants is positively associated with economic
prosperity, particularly so for skilled migrants in high-income countries; a one percentage point increase of
the diversity of skilled migrants increases long-run economic output, measured by GDP per capita, by 2%
(Alesina, Harnoss and Rapoport, 2016[26]). In addition, there is evidence for the United States that at the
city level, diversity generally has no significant impact on wages for low-skilled jobs, but has a positive
impact on wages in high-skilled, high-income jobs that demand complex problem-solving (Cooke and
Kemeny, 2017[27]). Similarly, panel data on US states over the 1960-2010 period indicates that diversity
among highly educated immigrants has positive impact on economic growth, whereas diversity among
low-skilled migrants has a no effect (Docquier et al., 2018[28]). Results for Germany show a smaller effect,
but similar pattern (Suedekum, Wolf and Blien, 2014[29]).
These findings point in the same direction as the literature focusing on the firm level, as they suggest that
diversity is likely to have a stronger positive impact in high-skilled employment. Other studies show similar
positive effects on GDP per capita, however effects are found to be stronger in low-income countries (see
for example Bove and Elia (2017[30]).
Looking at regions within 12 EU countries, 4 higher immigrant diversity is found to have a positive impact
on the productivity and wages of natives. This relationship is even stronger in more densely populated
areas, pointing to possible agglomeration effects, i.e. the benefits of firms and people located near to each
other (Bellini et al., 2008[31]). Similar results are found for US cities (Ottaviano and Peri, 2006[32]).
Using historic data from 1870–1920 from the age of mass migration to the United States, Ager and
Brückner (2013[33]) find that higher immigrant diversity is related to stronger economic development at the

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county level, whereas a stronger polarisation, i.e. few, but comparatively larger country of origin groups
living in counties with a American-born majority, has the opposite effect.

Diversity, social cohesion and preferences for redistribution

There is a large literature that goes beyond the economic impact of diversity and seeks to assess how
ethnic and immigrant diversity affects social cohesion and preferences for redistribution. Most of this
literature focusing on OECD countries has addressed how diversity can affect trust, voting patterns, civic
participation, preferences for redistribution and investment into public goods. Despite some contradictory
findings, evidence generally points to a negative relationship between diversity and these indicators of
social cohesion, although findings vary strongly across countries, level of analysis and the inclusion of
moderating factors. Generally, the negative impact of ethnic diversity appears to be more pronounced in
the United States than in European OECD countries (for an overview, see (Alesina and La Ferrara,
2005[34]; Montalvo and Reynal-Querol, 2014[35]; Dinesen and Sønderskov, 2017[36])).
However, the relationship between diversity and social cohesion is not clear-cut. The literature shows that
a number of factors have a strong mediating impact; social exclusion and disadvantage, inequality, inter-
group contact and social interactions as well as the role of governance and institutions are important
explanatory factors. In other words, what drives an often-observed erosion of social cohesion is not
diversity itself, but rather contextual factors related to socio-economic status, inequality and governance.
For example, studies on social cohesion in neighbourhoods show that the key element for weak social
cohesion is the low socio-economic status of a neighbourhood rather than its ethnic diversity (Letki,
2008[37]; Tolsma, van der Meer and Gesthuizen, 2009[38]; Laurence, 2017[39]). Another area of the literature
looks specifically at the impact of inequality between groups on public goods provision and attitudes
towards redistribution. On a country level, a study on 46 countries – mostly high-income countries and
emerging economies – finds a strong negative relationship between the level of provision of public goods
and inequality between ethnic groups measured as differences in mean incomes across groups. In
addition, findings suggest that these economic differences actually lead to lower public goods provision,
particularly in countries with weaker democratic structures (Baldwin and Huber, 2010[40]). Delhey and
Newton (2005[41]) find that generalised social trust is not directly impacted by diversity, whereas it is
negatively associated with income inequality.
Regarding attitudes towards social spending and redistribution, in EU countries, positive attitudes among
native-born towards income redistribution decrease with higher immigrant diversity and a higher share of
immigrants in the population (Alesina, Harnoss and Rapoport, 2014[42]). Overall, however, the effect is
small; a 1-percentage point increase in the share of foreign-born lowers support for redistribution only by
about 0.2 percent. In addition, this effect is even smaller when immigrants come from high-income
countries and when native-born are highly educated. This indicates that attitudes towards redistribution
are not primarily influenced by ethnic diversity, but rather by the socio-economic status of migrants and
possibly an assumed dependence on social welfare benefits.
Furthermore, there is mounting evidence that social interactions between groups has a positive impact on
social cohesion, and particularly, trust. Research on the United States and Canada show that white people
living in diverse neighbourhoods are more trusting when they regularly talk to their neighbours (Stolle,
Soroka and Johnston, 2008[43]). This highlights not only the role stereotypes play in eroding social
cohesion, but also the importance of social interactions to overcome them. This is particularly likely in
settings where people encounter each other as equals and as part of a routine or with a common goal,
e.g. in the workplace or at school, as such interactions can help reduce anxiety and increase empathy (for
an overview, see Pettigrew et al., (2011[44])).
Lastly, how diversity influences social cohesion hinges on the quality of governance structures and
institutions. Studies have shown that good governance on a country and regional level increase

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generalised trust and render an otherwise negative impact of diversity insignificant (Murtin et al., 2018[45];
Delhey and Newton, 2005[41]). Similarly, Kemeny and Cooke (2017[46]) find that in cities with low levels of
inclusive institutions, the benefits of diversity are modest or non-existent, whereas in cities with high levels
of inclusive institutions, the benefits of immigrant diversity are significant and positive.

The societal and economic cost of non-inclusion

In the context of increasingly diverse populations, there is a clear interest in gauging the economic impact
of diversity. The previous sections have shown that overall, the evidence on the economic impact of
diversity yields a rather complicated picture. Contrary to the often assumed, direct positive impact of
diversity on business performance, research shows that at the firm level, the business case for diversity is
not particularly strong.
However, while the impact of diversity might be small, there is a strong economic argument against
discrimination and non-inclusion based on the sizeable cost associated with it.
Quite evidently, the economic exclusion or inactivity of large population groups comes at a high cost,
particularly against the backdrop of demographic change related to ageing populations and increasing
shares of groups that have been traditionally disadvantaged in the labour market, such as people with
disabilities, migrants and ethnic minorities. Some studies seek to quantify the cost of continuing non-
inclusion of diverse populations. France, for example, could gain around EUR 150 billion, or 6.9% of the
2015 GDP, over 20 years (i.e. a 0.35% increase in GDP per year) from elevating employment rates of
women, French-born with a migration background, residents of disadvantaged neighbourhoods and people
with disabilities to the average employment level (Bon-Maury et al., 2016[47]). Similarly, if the gender gap
in labour force participation across the OECD were to be reduced by 25% by 2025, this could add one
percentage point to projected baseline GDP growth across the OECD over the period 2013-25, and almost
2.5 percentage points if gaps were halved (OECD, 2017[48]). While these estimates are not based on a
general equilibrium model, i.e. taking into account how this may impact the behaviour of supply, demand
and prices in the overall economy, it nevertheless demonstrates that there are substantial macroeconomic
gains in increasing labour market inclusion.
Employers will increasingly feel the cost of discriminatory behaviour in the context of growing labour market
shortages, as their competitiveness will suffer from irrational hiring preferences (Gary Becker, 1957).
Indeed, a field testing study has found that compared to natives, candidates with a foreign sounding name
are equally often invited to a job interview if they apply for occupations for which vacancies are difficult to
fill (Baert, Cockx and Gheyle, 2015[49]). Similarly, an analysis of reports filed in the context of the Dutch
diversity law Wet SAMEN finds that skilled labour market shortage impacts ethnic minority representation
positively (Verbeek, 2012[50]).
The economic dimension, however, is not the justification upon which efforts to foster diverse workforces
ultimately rest. Economic arguments can only serve to reinforce the obligation of ensuring the labour
market inclusion of diverse groups rooted in the idea of promoting a society that is just and equitable,
valuing diversity, providing equal opportunities to all its members, irrespective of their various
characteristics.
Thus, while there might not be a clear-cut business case for diversity, there is a strong social justice
obligation, as well as a business case to prevent discrimination and non-inclusion. This rationale is a logical
consequence of talent being distributed equally among the population – to make the most of increasingly
diverse workforces, businesses and policy makers must ensure that opportunity also is.

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Notes

1
Parts of this chapter are based on a background report on the economic impact of diversity, provided by
Ceren Ozgen (Marie Sklodowska-Curie Fellow at the Department of Economics and the Institute for
Research into Superdiversity (IRiS) at the University of Birmingham).

2
This index accounts both for the heterogeneity of a population as well as the size of different population
groups. It measures the probability that two people who are randomly selected from a sample belong to
different groups and is the inverse of the Herfindahl-Hirschmann index used in Chapter 3 to build a migrant
diversity index.

3
Most studies considered in these meta-analyses were conducted in the US.

4
Austria, Belgium, Denmark, France, former Western Germany, Ireland, Italy, the Netherlands, Portugal,
Spain, Sweden and the United Kingdom.

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