Ebook Gender Earnings Gap in German Firms: The Impact of Firm Characteristics and Institutions
The gender earnings differential is an intensely studied issue in labor economics and other social sciences. Most studies analyze gender pay differentials by focusing primarily on differences in the wage-determining characteristics of men and women and how these characteristics are rewarded. Differences in the return to specific human capital measures are generally denoted as discrimination and not analyzed any further. The idea that firms play an important role in creating and maintaining gender inequality by the way they define and reward jobs as well as by their recruiting and training practices, have become more and more popular during the last decade (see e.g. Baron 1984; Acker 1990, 1992). According to this approach, firms are no sex-neutral organizations. Looking closely at the design of work processes, pay systems, internal qualification activities and firm philosophy often reveals the firm’s image of male and female employees and its attitude towards gender equality.
In Germany, the wage setting process is not just the result of free negotiations between the individual and its employer, but also subject to various legislations. In this vein, pay differentials between men and women also depend upon the way the right of co-determination is implemented and put into practice and whether firms are subject to collective wage agreements or not. While it is well accepted that these firm characteristics affect the wage level as well as the wage distribution (see e.g. Davis and Haltiwanger 1991; Bronars and Famulari 1997; Abowd, Kramarz and Margolis 1999), most empirical studies do not examine how firm characteristics and the institutional environment affect the gender earnings differentials within firms.
The goal of our research is to move beyond the individual and consider the importance of the workplace to explain gender pay differentials. The empirical analysis is based on the German LIAB data, a representative linked employer employee panel including information on all employees of firms covered by the IAB establishment survey. The LIAB merges annual survey data (the IAB-establishment panel) and process generated individual data (the Employment Statistical Register of the IAB, which is based on administrative social security records).
There already exist some studies analyzing the effects of firm-specific characteristics on the gender wage gap (GWG) based on linked employer-employee data for other countries. Reilly and Wirjanto (1999) as well as Datta Gupta and Rothstein (2005) include both personal and establishment-level information to point out the effect of segregation on the earnings differences between men and women in Canada and Denmark. Drolet (2002) investigates how much of the Canadian pay gap can be attributed to specific workplace characteristics, such as high-performance workplace practices or training expenditures. Datta Gupta and Eriksson (2004) analyze the relationship between new workplace practices and the GWG. Meng (2004) and Meng and Meurs (2004) extend the traditional decomposition of the observed gap in an endowment and a remuneration effect by an additional firm effect.
In this setting, the firm effect represents the difference between the firm’s premiums paid to male and female employees and can be interpreted as employer discrimination. In a second step, the impact of firm characteristics on this discrimination term is determined. Simón and Russell (2005) analyze the GWG in a set of EU countries with a cross-national survey of matched employer-employee data. They show that workplace characteristics are very relevant in explaining wage differences between males and females in all countries.
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