This paper employs industry-level U.S. Census data from 1980-2000 to assess the
aggregate effects of racial diversity. While most international accounts find that diversity
reduces productivity, I argue that the U.S. experience is more nuanced. Unqualified
statements about the costs and merits of diversity are unwarranted, as racial heterogeneity
increases productivity within many, but not all, industries. Sectors employing a
large number of workers responsible for creative decision-making and customer service
experience gains from diversity, while industries characterized by high levels of group
effort suffer losses. The results thus reconcile two competing literatures by suggesting
that diversity improves decision-making and problem solving, but also encumbers
common action and public goods provision.