Gender earnings gap: The role of firm specific effects

The gender earnings differential is an intensely studied issue in labour economics. However, existing studies do not examine how the wage policies of firms affect gender earnings differentials. This paper uses employer-employee linked data to address this issue. The Juhn et al. [Juhn, C., Murphy K., Pierce, B., 1991. Accounting for the slowdown in black-white wage convergence, in M.H. Kosters, ed. Workers and Their Wages, AEI Press, 107-143] decomposition methodology is extended to incorporate the decomposition of firm fixed effects. It is found that, on average, firms' wage policies are associated with a significant narrowing of the gender earnings gaps. Further analysis indicates that firms which are more likely to have narrower gender earnings gaps are those subject to strong market competition, find it easy to identify labour productivity at the individual level, and with no enterprise level wage bargaining.