About the research
There’s a large literature of research analysing the impact of cultural diversity on people’s socio-economic outcomes. This study builds on that research by analysing how cultural diversity impacts the wages of natives (those who are working in their home country). In particular, it investigates whether people living in more diverse areas earn higher wages after controlling for other observable and unobservable characteristics, such as age and marital status.
The results show that cultural diversity is positively associated with wages, but only when cross-sectional data are used; panel data estimations show no impact of diversity. Since natives with comparatively higher skills – and wages – tend to self-select into more diverse areas, cross-section analyses may produce upwardly biased results.
The general conclusion is that even though we do see a correlation between wages and diversity in an area, it is not the level of diversity per se that has an impact on wages.
Methodology
Cultural diversity is measured by the number and size of ethnic groups living in each Local Authority District in England. The analysis is based on British Household Panel Survey data. The dependent variable is wages of people employed in England and the explanatory variables include individual characteristics such as gender, age, whether married, working part-time, qualification, occupation, and region of residence. Among the explanatory variables, the models also include a measure of diversity and of population density.
The analysis compares ordinary least squares, fixed effects, and first difference estimators. To validate the measure of diversity used, the researchers compared the size of ethnic groups as predicted by the population estimates to those computed using the Quarterly Labour Force Survey in the largest districts.
Publications
Longhi, S. (2013) ‘Impact of cultural diversity on wages, evidence from panel data’, Regional Science and Urban Economics, 43 (5), pp. 797–807. doi: 10.1016/j.regsciurbeco.2013.07.004