Rob raises the issue of whether diversity adds to productivity over at his Business Pundit blog. I did some research on this issue for my work on participatory management. It turns out that there is considerable evidence that homogeneous work teams tend to be more productive. I cite some of the relevant literature in footnote 80 of my paper article Privately Ordered Participatory Management: An Organizational Failures Analysis. A more detailed treatment can be found at pages 45-46 of my paper Corporate Decisionmaking and the Moral Rights of Employees: Participatory Management and Natural Law (the broader discussion of trust in the workplace at pp. 34-49 provides relevant background):
I note that the importance of ethnic and similar ties to the development of trust within a group has demonstrable consequences for the viability of participatory management in a diverse workplace. Even within communitarian societies, egalitarian relationships are often limited to homogeneous cultural groups. [Citing Francis Fukuyama, The End of History and the Last Man at 252] In heterogeneous groups, mandated due process rights tend to substitute for spontaneous and genuine trust. This conclusion is supported by empirical evidence that worker participation in corporate decisionmaking is most effective in homogeneous work forces. [Citing Robert Drago, Share Schemes, Participatory Management and Work Norms, 23 Rev. Radical Pol. Econ. 55, 59 (1991) (study of participation schemes in Australia finding that such programs are more effective when the work force is homogeneous).] The success of the well-known worker cooperatives at Mondragon in Spain, for example, is attributed to the ethnic and cultural homogeneity of the Basque workforce. [Citing Jacqueline Bhabha, The Right to Community, 64 U. CHI. L. REV. 1117, 1126.] Consider also the observation that many Japanese-owned U.S. manufacturing firms, "particularly in electronics, have adopted very few Japanese production methods. Rather, they utilize paternalistic and low-wage employment strategies with little evidence if any sophisticated work practices." [Citing Thomas A. Kochan et al., The Transformation of American Industrial Relations at xvii.] Practices found in the homogenous Japanese society apparently have not been transplanted to the more diverse U.S. workplace.
A very interesting recent paper, Diversity and Productivity in Production Teams, similarly found support for this line of argument, albeit not at a statistically significant level:
Diversity in ability enhances the team productivity if there is significant mutual learning and collaboration within the team, while demographic diversity is likely to harm productivity by making learning and peer pressure less effective and increasing team-member turnover. ... Our results indicate that teams with more heterogeneous worker abilities are more productive. Holding the distribution of team ability constant, teams with greater diversity in age are less productive, and those composed only of one ethnicity (Hispanic workers in our case) are more productive, but the findings for team demographics are not robust to alternative model specifications.
Another study, Diversity, Discrimination, and Performance finds that: "We find little payoff to matching employee demographics to those of potential customers except when the customers do not speak English. Diversity of race or gender within the workplace does not predict sales or sales growth, although age diversity predicts low sales." In other words, they conclude that there is no consistent empirical support for the proposition that "employers must hire a diverse workforce to attract diverse customers." (P.7) Second, they find no correlation between diversity and sales in a retail environment, which again suggests that policies mandating workplace diversity cannot be justified on grounds that such diversity increases productivity or profitability. (Of course, this study also would not support an argument for dismantling such policies on grounds that they reduce productivity or profitability.)
Granted, there are contrary findings, such as Corporate Governance, Board Diversity, and Firm Performance, which finds "significant positive relationships between the fraction of women or minorities on the board and firm value." On balance, however, it seems unlikely that workplace diversity can be justified on grounds that it increases firm productivity or profitability. Instead, proponents of diversity requirements ought to rely on other justifications.
This result finds support in a somewhat surprising place; namely, a survey of the relevant literature by two critical race theory scholars, Mitu Gulati and Devon Carbado. In their paper, The Law and Economics of Critical Race Theory, at 132-46, they critically canvass the relevant literature. (By my rough eyeball count, they refer to at least 30+ separate works of theoretical and/or empirical research.) At 145, they conclude:
There is theoretical and empirical evidence suggesting that employers are motivated to pursue homogeneity: Put simply, homogeneous workplaces facilitate trust, loyalty, and cooperative behavior. The story with respect to heterogeneous work teams is different. First, at an institutional level, heterogeneity is difficult and costly to manage. Second, the most cost-effective way for individual supervisors to manage heterogeneity is to "socialize away" outsider difference. Thus, it is more accurate to characterize this strategy as eliminating, rather than managing, heterogeneity. Third, even assuming that heterogeneity can be effectively managed, the benefits of a heterogeneous workplace are speculative, and they are realized primarily over the long term.
There results are consistent with my interpretation of the literature; namely, that there are findings on both sides but that on balance the economic incentive of employers is to pursue workplace homogeneity. Indeed, they acknowledge that such incentives mean that "an employer's preference for racial sameness won't always be motivated by racial animus." They then proceed to advance alternative justifications for promoting racially diverse workplaces, just as I suggest above. This is, I think, a useful contribution to the discussion. There are distributional and other justice grounds for policies that promote or mandate workplace diversity. The proponents of such policies, however, appear to overstate their case when they claim that there also are strong efficiency rationales for such policies.
My thanks to Von at Obsidan Wings, whose post prompted me to flesh out the argument in more detail. (I would still disagree, however, with Von's suggestion that these studies do not support the argument that workplace homogeneity is in the shareholders' interest. It depends on how we define the interests of shareholders. If shareholders are concerned with profitability or productivity, it appears that workplace homogeneity is the preferred policy. Carbado and Gulati's argument, for example, is predicated on the claim that managerial employment decisions are motivated by concern with short-term returns to the firm.)
