Ethnic Divisions and Production in Firms

Investigator: CDEP Affiliate Jonas Hjort

Evidence suggests that ethnic heterogeneity limits economic growth, but explanations found in the literature primarily focus on decision-making in the public sphere. This paper provides microeconometric evidence on the direct effect of ethnic divisions on productivity.

Two years of daily production data from a large plant in Kenya in which workers packed flowers in three-person teams is used. Teams of both ethnically homogeneous and mixed compositions are observed before and during a period of intensified ethnic conflict in Kenya, and before and after a change in incentives to discriminate against non-coethnic downstream workers in the allocation of intermediate flowers.

The project attempts to quantify the output loss due to ethnic diversity in production units, the source of lower output in diverse units, how the output gap in diverse units responds to increased ethnic conflict, and how workers respond to firms re-organizing production (incentives) to reduce diversity distortions.

A working paper is available as CDEP-CGEG Working Paper No. 6. This project is affiliated with CDEP’s Firms and Innovation Initiative.