Bargaining, Sorting, and the Gender Wage Gap: Quantifying the Impact of Firms on the Relative Pay of Women

Abstract

There is growing evidence that firm-specific pay premiums are an important source of wage inequality. These premiums will contribute to the gender wage gap if women are less likely to work at high-paying firms or if women negotiate (or are offered) worse wage bargains with their employers than men. Using longitudinal data on the hourly wages of Portuguese workers matched with income statement information for firms, we show that the wages of both men and women contain firm-specific premiums that are strongly correlated with simple measures of the potential bargaining surplus at each firm. We then show how the impact of these firm-specific pay differentials on the gender wage gap can be decomposed into a combination of sorting and bargaining effects. We find that women are less likely to work at firms that pay higher premiums to either gender, with sorting effects being most important for lowand middle-skilled workers. We also find that women receive only 90% of the firm-specific pay premiums earned by men. Importantly, we find the same gender gap in the responses of wages to changes in potential surplus over time. Taken together, the combination of sorting and bargaining effects explain about one-fifth of the cross-sectional gender wage gap in Portugal.

Who Works for Whom and the UK Gender Pay Gap

“…More direct comparisons of our main findings are possible with a few recent studies of the gender pay gaps in other countries (e.g. Card et al 2016;Sorkin 2017; see Section 5 for a full comparison with several relevant studies). In particular, Cardoso et al (2016) (henceforth CGP) looked at how much of the Portuguese hourly wage gap could be accounted for by the allocation of men and women over establishments and job titles.…”

“…It is important to acknowledge that the key assumptions of the AKM model have been criticized as being unrealistic (for a summary, see Card et al 2018). The additive separability of worker and firm fixed effects is a strong assumption, although one we can check later by considering whether a model which replaces these with worker-firm match-specific fixed effects improves the fit to the data.…”

“…Besides CGP, the other studies which have estimated a role of worker-firm sorting in gender pay gaps focus on an Oaxaca decomposition of the 'Raw' or observed gap. These estimates are also based on AKM-type model estimates (see, e.g., Card et al 2016, among the other studies discussed and summarized below in Table 6). Table 2 summarizes the results of an Oaxaca decomposition for the raw UK pay gap.…”

“…Bruns (2019) and Gallen et al (2019) also found the sorting component dominated any role for gender wage bargaining effects in recent decades in Germany and Denmark. Casarico and Lattanzio (2019) find that the bargaining component in Italy Bruns (2019) Germany , 1995-2008 25 (2001-2008) 25-31% (raw) Method follows Card et al (2016); −5% -0% of raw gap from bargaining component; sample of 2.5 million workers in 90,000 establishments; age 20-60; no hours data; top-coded data. Gallen et al (2019) Denmark, 198019 (2000 14% (raw) Method follows Card et al (2016); estimated sorting effect varies over time, being only 3% in 1980-1989; sorting effects at establishment level; annual earnings data and no hours for full-time workers.…”

Collective Bargaining and the Evolution of Wage Inequality in Italy

“…Card et al (2013) develop several tests to support the validity of the strict exogeneity assumption and the additive separability of firm and worker effects. These tests have been conducted on German data (Card et al 2013), Portuguese data (Card et al 2016) and also on Italian Social Security earnings data, albeit for a matched sample of large firms only (above 50 employees, see Macis and Schivardi 2016). All papers find no evidence in support of the endogenous workers' mobility hypothesis and conclude that the AKM model provides a good approximation of the wage process.…”