The Nexus between Labor Diversity and Firm's Innovation

In this paper we investigate the nexus between rm labor diversity and innovation using a linked employer-employee data from Denmark. Specically, exploiting information retrieved from the comprehensive database and implementing a proper instrumental variable strategy, we are able to identify the contribution of workers diversity in cultural background, skills and demographic characteristics to valuable firm's innovation activity. The latter is measured by: (1) the firm's propensity to apply for a patent, (2) the number of patent applications (intensive margin) and (3) the firm's ability to patent in different technological areas (extensive margin). We find that skill and ethnic diversity plays an important role in propelling firm's innovation outcomes. Conversely, the effect of demographic diversity typically vanishes once detailed firm-specic characteristics are included as control variables.