Research Reveals That Employers Play a Key Role in Explaining the Gender Wage Gap
A study conducted across 11 countries shows that employers are a major factor in why women continue to earn less than men, even when working in the same occupations.
Researchers find that gender differences in firm-specific wage premiums account for 10% to 30% of the gender wage gap in private-sector hourly wages across 10 European economies and Washington State, US. These premiums represent the extra pay that some firms provide to all employees on top of what their individual skills would predict.
Firm-specific wage premiums explain about 15% of the private-sector gender wage gap in hourly wages in Finland. This places Finland among the countries where firms clearly matter, though not as strongly as in Germany, Hungary, or the United States. Within the Nordic region, Finland is similar to Denmark and Sweden, where firms account for roughly 15–20% of the gender wage gap. Norway shows a somewhat larger firm contribution (around 20–25%).
The study focuses on two mechanisms contributing to the gap in all countries: first, women are more likely to work in firms that offer lower wage premiums to all employees, which is called the sorting channel. Second, within the same firm, women receive lower premiums than their male colleagues, which is called the pay-setting channel.
“Our analysis shows that women are, to some extent, paid less than male colleagues within the same firm. However, the sorting channel is the main driver of the wage gap in most countries. And this pattern persists even after accounting for differences in occupational sorting. This indicates that employers play an important role in generating gender differences in wages, above and beyond occupational choice,” says Senior Researcher Stefano Lombardi from the VATT Institute for Economic Research.
Three reasons why the wage gap persists
Women’s sorting into lower-paying firms tends to widen with age. Men are more likely to climb the “job ladder” and move to higher-premium firms in their late 20s and early 50s, while women are less likely to make such transitions. As a result, the gap in firm wage premiums between men and women grows over the life cycle.
Additionally, women are more likely to work part-time, and they are also more likely to be employed in firms where part-time work is common. These firms systematically pay lower premiums to all workers, regardless of gender.
A third factor is that in high-premium firms, women receive on average only about 90% of the premium increases that men receive. In other words, when a firm’s surplus rises, women do benefit—but they benefit less.
“These three patterns are remarkably consistent across countries, and these mechanisms operate similarly in very different labour-market institutions. This suggests that they are structural, generalizable forces that reinforce gender inequality through firm wage-setting,” Lombardi concludes.
The project is a collaborative effort of the OECD-LinkEED, a research network that brings together international researchers working with linked employer–employee data.
Further information
Firms and the Gender Wage Gap: A Comparison of Eleven Countries
Stefano Lombardi
Labour markets
firms
pay gap
