Diversity and the wealth of cities: US evidence 1980-2000

Abstract

We evaluate the economic significance of linguistic barriers to communication in 226 US cities from 1980 to 2000 to test for the ‘paradox of diversity’, namely, whether knowledge exchange is inhibited by linguistic barriers to communication across social groups. We find: one, linguistic and cultural diversity increases the average income of the working age population; and two, the higher is the proportion of the foreign-born population in a city not fluent in English, the smaller is the economic benefit of diversity. The results provide valuable insights as to how the economic benefits of diversity can enhance wealth within cities.