How racism and a lack of diversity can harm productivity in our workplaces

Beyond the requirement for diversity management and training in workplaces, Australian businesses also need to grapple with implicit racial bias and discrimination.

A review of multiple studies indicates exposure to racism is detrimental to performance. This is due to its impact on job attitudes, mental and physical health, as well as organisational behaviour. Research also indicates that, by inflicting job stress, racism can reduce productivity.

Even where diversity is unrelated to business performance, too much is at stake for companies to simply ignore their team composition.

Diversity itself is a demographic fact, rather than an intrinsic “good” or “bad” thing. As such, it is the underlying social, economic and political climate in a country that determines diversity’s impacts in society.

Stable and unstable nations

The effect a country’s cultural diversity has on its economic performance is mixed. It depends on the nation’s stability, we have found.

Ethnic diversity can have a detrimental effect in countries with a climate of poverty, economic inequality, political instability, corruption and a weak rule of law. In such countries, ethnic fragmentation has the potential to produce conflict and civil war, arising from competition for resources.

Two studies that synthesised the evidence on the relationship between diversity and productivity found that, at worst, diversity had no overall impact on team performance.

Nonetheless, some studies indicate that diversity can lead to depletion of social capital (by enhancing in-group/out-group distinction and reinforcing in-group solidarity), emotional conflict and team performance.

Conversely, in a stable social environment, diversity has a productivity dividend. This is particularly reflected in the consensus that diverse regions enjoy better productivity and hence higher wages. These benefits are largely due to diversity providing a variety of skills and a wider talent pool.

Research abounds indicating that a diverse workplace delivers increased product and process innovation, creativity and problem solving. This leads to sound business opportunities by ensuring competitive advantage.

What do businesses need to do?

Australian workplaces do not yet reflect the level of cultural and ethnic diversity in the broader community. But they are becoming increasingly diverse.

As a result, Australian businesses have recognised that managers require an understanding of different cultures to effectively lead their diverse employees and teams. Diversity management policies are also seen as key for business success, both domestically and internationally.

In the absence of measures that positively tackle diversity, the potential for cultural misunderstanding in the workplace is high. This can lead to heightened levels of racism, xenophobia and discrimination.

At a personal level, our research, which reviewed more than 300 studies, conclusively showed direct associations between racism and a range of mental illnesses, including depression and anxiety. And if you apply the international evidence to an Australian context, people’s exposure to racism accounts for a 3% loss in average annual gross domestic product, we estimate.

The impact of exposure to racism in the workplace can be substantial: it can affect a person’s health and career outcomes.

For organisations, racism, whether overt or subtle, creates unhealthy workplace conditions. By creating tension in the workplace, it can damage organisational image, reduce synergy and hamper productivity. But despite such negative impacts, there is a concerning evidence that racism and racial bullying are quite prevalent in the workplace.

In a large UK study, which surveyed 24,457 people, 28% of the respondents reported that they “directly experienced or witnessed racial harassment or bullying from their manager” over a period of five years. This stands in contrast to the universal awareness of the damaging impact of workplace bullying and racial harassment.

Workplace cultural diversity and productivity are closely related. But the potential benefits can only be realised if organisations foster a conducive atmosphere for their diverse workforce.

Workplace health and safety, including protection against discrimination, are vital for productive and rewarding performance, given the clear evidence of the detrimental impact racism has at work.