NCPA - National Center for Policy Analysis


March 4, 2009

Between 1980 and 2000, the United States grew increasingly diverse as whites declined from 83 percent to 73 percent of the labor force, and as states reconsidered their affirmative action policies while the federal government reevaluated immigration and citizenship statutes.  International empirical analyses argue that racial heterogeneity hinders economic growth and development by fostering conflict, but many U.S. business executives and academics disagree.  A recent study published in the "Southern Economic Journal" adds to the debate by building upon the traditional economic growth framework to measure racial diversity's net effect on productivity.

Author Chad Sparber employed industry-level U.S. Census data from 1980-2000 to assess the aggregate effects of racial diversity arguing that unqualified statements regarding the costs and merits of diversity are inappropriate for the U.S. economy, as racial heterogeneity increases productivity in many, but not all, industries.

Using regression analysis, Sparber found:

  • A one standard deviation increase in diversity would raise wages by 42 percent in legal services, 16 percent in computer manufacturing, 13 percent in computer software and 11 percent in advertising.
  • Even when controlling for selection bias and variations among states and industries, the gains from diversity are sizeable and economically relevant.
  • Losses envisioned by the international growth literature occur in only seven industries and are concentrated in traditional sectors of the economy including mining, raw durables, fabricated metals and transportation.

Moreover, the regressions show that diversity bolsters productivity and wages in industries employing creative decision makers and complements customer service; yet, heterogeneity reduces productivity in sectors requiring high levels of group effort and common action, says Sparber.

Source: Chad Sparber, "Racial Diversity and Aggregate Productivity in U.S. Industries: 1980-2000," Southern Economic Journal, Vol. 75, No. 3, January 2009.


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