PI: Frank R. Dobbin Institution: Harvard University
SES-1023591 PI: Alexandra Kalev Institution: University of Arizona
The investigators examine how corporate diversity influences performance across time, occupations, and industries. Some studies suggest that diversity in the workplace will lead to conflict and suppress corporate performance while other studies suggest that demographic diversity can improve creativity, innovation, work group performance, and network connections. The researchers hypothesize that any negative effects of conflict will dissipate with time, leaving the positive effects of workplace diversity. Two datasets on corporations are combined: the Compustat financial dataset covering publicly traded companies in the U.S., and the federally mandated EEO1 reports, detailing the gender, race, and ethnic breakdown of workers in U.S. workplaces. A sample of 3000 publicly traded companies that meet the EEO1 reporting requirements are merged for the years 1971 to 2010 from the two data sources. The resulting dataset provides some 33,000 company-by-year observations, spanning four decades.
Broader Impacts: As the U.S. population and workforce become more diverse, with the growth of immigrants from Asia, Latin America, the Caribbean, and Africa, this research will provide insight into how diversity contributes to productivity, and where and why it poses problems.
What effect does workforce diversity have on corporate performance? For decades social scientists have argued that diversity improves performance by permitting corporations to make use of the most talented women, African-Americans, Latinos, and Asian-Americans. The "business case" for diversity has been mutifold. Firms can improve performance by employing the most talented individuals from each race/ethnic-by-gender group. Integrated product development, production, service, and marketing teams benefit from a wide range of social experiences and perspectives. Integrated sales teams can appeal to a wide range of consumers. Integrated decision-making teams generally make better decisions, and are less likely to fall into old, ineffective, routines. Yet to date we have no good evidence of the effects of workforce diversity on the corporate bottom line. Do companies with diverse workforces actually make more money than their peers? Does workforce diversity promote shareholder value? To conduct the first large-scale, causal, study on the effects of workforce composition on corporate profitability and stock performance, we assemble a dataset from over 10,000 publicly held companies for 1971 to 2012. The data were collected in real time by the Securities and Exchange Commission and the Equal Employment Opportunity Commission. Never before combined, these data allow us to examine whether firms that increase gender, race, and ethnic diversity see increases in corporate performance. Preliminary results are promising. Firms that increase gender diversity see increases in share price and in profitability, but this is only true for firms that increase gender diversity in the best jobs -- technical, professional, and management jobs. Women have long been well represented in lower level jobs. We conclude that by incorporating women at the top, firms make use of the most talented women.
