Labor force diversity and new firm formation

Abstract

Many countries have experienced increases in the diversity of their labor forces. Our paper examines one such country—Sweden—and relates the diversity of the local labor force, in terms of demography, culture, education, occupation and industry, to new firm formation. We measure diversity using entropy measures that account for a wider range of differences than is typically used. Our empirical analysis finds a positive relationship between diversity of the labor force, in terms of demography, culture and education, and the rate of new firm formation. Our results add to the literature on the workings of agglomeration economies in urban growth through variations in human capital, information spillovers and innovation.