Firm-specific pay premiums and the gender wage gap in Europe

Abstract

We study how firm premia influence the gender wage gap for 21 European countries. We use a quadrennial harmonized matched employer–employee dataset to estimate gender-specific firm premia. Subsequently, we decompose the firm-specific wage premia differential into within- and between-firm components. On average, the former accounts mainly for the decline in the pay gap between 2002 and 2014. We pay particular attention to the development of each component by age group, and find that the between-firm component is associated with an increase in the gender pay gap over age. The decomposition of firm premia allows us to investigate how institutional settings relate to each component. We associate the within-firm component with collective bargaining at the national and firm levels, and the between-firm component with family policies. Decentralized wage bargaining is associated with a larger within-firm pay gap, whereas family policies incentivizing women to return to employment after family formation are linked to a smaller between-firm component.