Racial Diversity and Aggregate Productivity in U.S. Industries: 1980–2000

Abstract

This paper employs industry‐level U.S. census data from 1980 to 2000 to assess the aggregate effects of racial diversity. While most international accounts find that diversity reduces productivity, I argue that the U.S. experience is more nuanced. Unqualified statements about the costs and merits of diversity are unwarranted, as racial heterogeneity increases productivity within many, but not all, industries. Sectors employing a large number of workers responsible for creative decision making and customer service experience gains from diversity, while industries characterized by high levels of group effort suffer losses. The results thus reconcile two competing literatures by suggesting that diversity improves decision making and problem solving but also encumbers common action and public goods provision.