Beyond the Mean Gender Wage Gap: Decomposition of Differences in Wage Distributions Using Quantile Regression

The fact that women generally earn less than men has stimulated much discussion in industrialized countries since the 1970th. Therefore, the level as well as the sources of the gender wage gap are in the focus of the scientific community and are of broad public interest. The key issue in this study is the extent to which the observed gender wage gap can be explained by individual characteristics such as education and work experience and how much is due to selection into different establishments. Based on a decomposition method, the observed wage gap is assigned to four explanatory components: (1) Difference in the individual characteristics, (2) Difference in the remuneration of these individual characteristics, (3) Difference in establishment characteristics, (4)Difference in the remuneration of these establishment characteristics. Beyond the decomposition of the mean wage gap, the decomposition is undertaken across the entire wage distribution. This study consequently links two aspects of current empirical research on the gender wage gap. On the one hand, the establishment level is included in the study and, on the other hand, the analysis is extended to include the entire wage distribution. Based on linked employer-employee data the finding is that, on average, women earn 23.5 per cent less than men. The gender wage gap is larger in the lower tail of the wage distribution than on the upper tail. The decomposition of the observed wage gap shows that the four defined decomposition components vary only mildly across the wage distribution. Only a small part of the wage gap is due to differences in the individual characteristics between men and women. In the middle of the wage distribution women are even endowed with better individual characteristics. The segregation of men and women into different firms also explains part of the wage gap, particularly at the lower end of the wage distribution. The largest part of the wage gap is referred to differences in the remuneration of establishment characteristics. It is apparent that even if men and women have the same individual characteristics, receive the same remuneration of these individual characteristics and work in the same firm, women still earn 16 per cent less than men on average. This within-firm wage gap is more pronounced at the lower end of the wage distribution than at the top end. In summary, the sources of the gender wage gap do not differ much between individuals in the lower and the upper part of the wage distribution. Compared with the selection of men and women into different establishments, differences in qualification between men and women explain only a small part of the observed wage differential.

Heinze, Anja (2010), Beyond the Mean Gender Wage Gap: Decomposition of Differences in Wage Distributions Using Quantile Regression, ZEW Discussion Paper No. 10-043, Mannheim.