Ethnic Diversity and Firm Performance in Norway1

Ethnic diversity has received increased research attention in Nordic countries; however, only a few studies have looked at it from the perspective of firms. In this study, we analyze whether changes in ethnic diversity among staff and in management affect firm performance. We also test whether productivity gains from diversity are due to immigrants being hired in low-paying jobs by analyzing how the association between diversity and productivity is affected by immigrants' positions in firms' wage distributions. Our results suggest a positive relationship between changes in ethnic diversity within firms and firm productivity. The association strengthens if firms have more diversity in management and immigrants higher up in their wage distribution. This suggests that our results are not driven by firms that hire immigrants in low-paying positions. Possible mechanisms to increase firm productivity through ethnic diversity include wider recruitment and activation of diversified human capital and more inclusive firm policies.