Linguistic diversity and workplace productivity

A key component in firms’ production strategies is to put together a workforce with the optimal mix of skills. Hiring workers with complementary human capital will improve productivity and profits. The ability to speak several languages and knowledge about cultures and religions could thus be important human capital resources influencing firm performance. Workers might differ along these dimensions too, and this could influence firm productivity ( Lazear, 1999 ). Cultural diversity might introduce new ideas and innovation ( Alesina et al., 2000 ; Kerr and Lincoln, 2010 ; Peri et al., 2015 ), since people with different backgrounds than the majority might see new solutions to problems. However, a firm with a workforce from several different cultures might have to spend resources to integrate the workers into well-functioning teams. For in- stance, cultural diversity implies preference heterogeneity that might create tensions and conflicts ( Easterly and Levine, 1997 ) unless the firm has institutions to handle conflicts.