Does employee’s diversity help innovation?: Evidence from Canadian firms

Abstract

This study examines how ethnic diversity among employees influences innovation within firms. Drawing on organizational behavior theories, it highlights how diversity can both enrich idea generation and create behavioral challenges. Using Canadian Workplace and Employee Survey (WES) data and a mixed logit model, the study finds robust evidence that ethnic diversity positively impacts both product and process innovation, even after addressing endogeneity. Importantly, diverse employees are most effective in firms with strong organizational capital and training programs. Manufacturing, transportation, and selected service sectors benefit the most, underscoring diversity’s role as a driver of knowledge creation and competitive advantage.