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The weak linkage between workplace diversity, turnover
Haas researchers examine low-wage service sector to test validity of received wisdom among diversity consultants

| 29 November 2006

Contrary to popular thinking among some diversity consultants, employing workers of many different races has little effect on average turnover in a retail workplace, although employees do quit more often if fewer colleagues are the same race, according to a recently published case study by two professors at the Haas School of Business.

In one of a very few studies designed to explore how workplace demographics affect employee behavior, Haas School Professors Jonathan Leonard and David Levine examined more than 70,000 "frontline" employees at more than 800 workplaces owned and operated by a national retailer. (The sample excluded managers, assistant managers, and headquarter or international staff.) The high employee turnover characteristic of this sector (about 50 percent of new hires left the company within four months of being hired), though typical of retail, makes the sector "useful for studying the effects of changing demographics," the authors note. Leonard and Lefine outline the results of their study in an article titled "The Effect of Diversity on Turnover: A Large Case Study" that appeared recently in the journal Industrial and Labor Relations Review.

"The most important takeaway is that diversity itself doesn't matter much in terms of turnover for most groups of workers," says Leonard, who chairs the Haas Economic Analysis and Policy Group. "It suggests that people are, at least in this sector, pretty tolerant."

Leonard and Levine's findings contradict an argument of some diversity consultants, who claim that having a workforce that is both gender- and racially diverse reduces turnover. Leonard and Levine also failed to find support for another line of thinking that argues that diverse workplaces experience more friction and thus require special training.

"We were interested in seeing whether in fact there really was an empirical basis for a lot of advice that is pretty commonplace in the diversity-consulting industry," explains Leonard, who holds the George Quist Chair in Business Ethics at the Haas School. "We discovered that diversity itself is not a big driver of turnover, at least in the retail sector."

Leonard and Levine, director of Berkeley's Center for Health Research, note that a workplace is most diverse when each racial group and gender has an equal share of employment.

Birds of a feather

At the same time, Leonard and Levine did find support for the old proverb "birds of a feather flock together" when they studied another facet of diversity - racial isolation. They defined racial isolation as being in a numerical minority in a workplace, whether one is white, black, Hispanic, or Asian. For instance, in a group composed of five black employees and two white employees, the white employees would be more racially isolated than their black colleagues.

"The problem for managers is that each new hire raises isolation for some groups at the same time that it decreases isolation for others," Leonard and Levine note.

Another discouraging finding was that members of all minority groups are more likely to quit a workplace in which a greater proportion of employees are white, suggesting that diversity is difficult to sustain. "Managers can benefit by helping employees thrive in a world of racial diversity - a prescription that is easier to state than to implement," the authors write.

Leonard and Levine point out that their results best apply to the low-wage service sector, which is already characterized by high turnover. But as a chief entry point into the workplace, that sector is significant, Leonard notes. "The fact that there seems to be a lot of tolerance in that entry-level job is good news," he says.

Other results of the study include:

. Women were slightly more likely to quit when the gender breakdown of their workplace was closer to 50 percent female and 50 percent male, and less likely when their workplace was less diverse, with either mostly female or mostly male employees. (The authors at one point remind readers that workplace diversity does not increase inexorably with an increasing proportion of female or minority workers: "Gender diversity reaches its maximum in a workplace that is half female. As the percentage female increases further toward 100 percent, diversity falls toward zero.")

The effects of 'isolation'

. Racial isolation from potential customers - not just coworkers - also increased turnover, the authors found. Black and Hispanic employees in particular were less likely to quit in heavily black and Hispanic communities, respectively. "Although the evidence is mixed," the authors write, "and the practice can lead to employment discrimination litigation, many managers and management consultants advocate hiring a work force that matches the demographics of potential customers in the belief that customers prefer to deal with demographically similar employees."

. White employees left more often in situations where there were fewer whites. Although the sample was two-thirds white, almost a quarter of the workplaces had a nonwhite majority.

. There was evidence that blacks and Hispanics preferred each other to white coworkers. Black exits were particularly rapid when more of their coworkers were white or Asian, while Hispanic colleagues did not increase black employees' exit rate.

. For Hispanics, unlike other groups, turnover was lowest with a mixture of Hispanics and others. Hispanics left stores with many whites or Asians, but were not more likely to leave stores with black coworkers.