Gender Earnings Gap in German Firms: The Impact of Firm Characteristics and Institutions

Abstract

Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp06020.pdf Gender Earnings Gap in German Firms AbstractMost existing analyses on the gender wage gap (GWG) have neglected the establishment as a place where inequality between male and female employees arises and is maintained. The use of linked employee-employer data permits us to move beyond the individual and consider the importance of the workplace to explain gender pay differentials. That is, we first provide a comprehensive study on the effects of various firm characteristics and the institutional framework on the GWG in Germany. The innovation of our research is that we do not just compare average male and female wages (of specific groups of employees), but look at within-firm gender wage differentials. Our results indicate that the mean GWG within firms is smaller than the average overall GWG. Furthermore, we can show that firms with formalized co-determination (works council) and those covered by collective wage agreements are more likely to have smaller GWG. It is also interesting to note that the wage differential between men and women decreases with firm size and increases with the wage level. JEL Classification: J16 and J31Keywords: gender wage gap; unions, works councils, discrimination, within-firms wage differentials. Non-technical summaryMost 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. The goal of our research is to move beyond the individual and consider the importance of the workplace to explain gender pay differentials. The innovation of our research approach is that we do not just compare average male and female wages (of specific groups of employees), but look at within-firm gender wage differentials. In the following study, we will focus on the impact of works council and the collective bargaining coverage.An attempt to explain the wage differences between men and women would not be comprehensive and convincing, if Becker's theory on discrimination were not considered at all. We hence propose alternative concepts to test the hypotheses derived from the discrimination model. 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.To investigate the theoretical hypotheses regarding the effect of firm and institutional characteristics on wage i...

How to Limit Discrimination? Analyzing the Effects of Innovative Workplace Practices on Intra-Firm Gender Wage Gaps Using Linked Employer-Employee Data

“…In accordance with earlier studies, our results indicate that both works councils and collective agreements are in favor of women's relative wages (Gartner and Stephan 2004, Achatz, Gartner and Glück 2005, Heinze and Wolf 2006, Addison, Teixeira and Zwick 2006. The negative union effect may be explained by the reduced wage dispersion among employees covered by the same collective bargaining agreement (see e.g.…”

“…15 This finding is consistent with the hypothesis that large firms are more in the focus of the public and hence evoke much civil commotion by discretionary decisions to the disadvantage of women. Alternatively it may be argued that male and female employees in large firms are more likely to work in comparable job positions (unless jobs are not fully segregated) which limits the potential of discrimination (see also Heinze and Wolf 2006). though.…”

Rising Wage Inequality, the Decline of Collective Bargaining, and the Gender Wage Gap

“…Then, highly productive workers may opt out of covered firms (Gartner and Stephan, 2009) or demand payment above the collectively negotiated (minimum) wage level. The higher homogeneity of employees should reduce the gender wage gap in covered firms (Heinze and Wolf, 2006). At the same time, the gender wage gap should differ across bargaining regimes and personal characteristics should explain a part of the gap.…”

Rising wage inequality, the decline of collective bargaining, and the gender wage gap

“…If a growing use of variable remuneration schemes causes the increase in wage inequality, it is likely that the decline in wage bargaining should be weaker for females than for males. On the other hand, collective bargaining is likely to reduce the heterogeneity of employees, due to the minimum wage character of negotiated wages or due to self-selection into covered firms (Heinze and Wolf, 2006;Gartner and Stephan, 2004). This might stem from the fact that firms adapt their hiring standards to the productivity level required for paying the collectively negotiated wage and train employees with a lower productivity (Gartner and Stephan, 2009;Gerlach and Stephan, 2006).…”

“…For Germany, Heinze and Wolf (2006) and Stephan (2009, 2004) find that the gender wage gap is lower within firms compared to the overall wage differentialsuggesting a certain degree of homogeneity of workers within a firm. At the same time, the existence of a works council or coverage by collective wage bargaining agreements reduces the gender wage gap.…”