The Use and Misuse of the Coefficient of Variation

Demographic heterogeneity is a central theoretical construct in organizational demography research. The most commonly used measure of demographic heterogeneity is the coefficient of variation. I critically evaluate the rationale for using this measure and show that the use of the coefficient of variation raises a number of methodological and interpretive problems. Empirical analyses of turnover suggest that using the coefficient of variation may lead to incorrect conclusions about the effects of demographic heterogeneity. In recent years, organizational sociology has witnessed a rapid growth in research in the field of organizational demography. Studies in this research tradition relate the demographic composition of groups and organizations to a variety of organizational outcomes. The organizational demography research program represents a promising and powerful structural approach to understanding organizational behavior (Pfeffer 1983). Its strongest appeal lies in being able to link individual and organizational attributes in a simple manner. Research in this tradition covers an impressively wide range of organizational outcomes, including turnover (e.g., O’Reilly, Caldwell and Barnett 1989; Sørensen 2000), social integration (e.g., Smith et al. 1994), firm performance (e.g., Pegels, Song and Yang 2000), strategic behavior (Hambrick, Cho and Chen 1996), and diversification (Wiersema and Bantel 1992). Organizational demographers focus primarily on the consequences of demographic heterogeneity in groups. Depending on a researcher’s substantive interests, such heterogeneity can occur along a number of social dimensions, including race, sex, education and organizational or group tenure. While there is some disagreement about the mechanisms linking group heterogeneity to group outcomes, the most commonly posited intervening construct is social integration (Carroll and Harrison 1998). Drawing on either the logic of social identity theory (Tajfel and Turner 1986) or the similarity/attraction paradigm (Berscheid and Walster 1978), organizational demographers expect that demographic heterogeneity lowers social integration and attachment in groups (Williams and O’Reilly 1998). This leads to the expectation, for example, that group heterogeneity will increase turnover rates (e.g., Wagner, Pfeffer and O’Reilly 1984).