This chapter focuses on the age‑profile of the pay gap between similarly skilled men and women. It starts again by decomposing the gender gap in labour earnings at each age into the components associated with the gaps in working time and hourly wages. It then decomposes the hourly wage gap within and between firms and the within-firm gender wage gap into components associated with differences in tasks and responsibilities and differences in pay for work of equal value. It concludes by analysing how gender differences in job mobility contribute to the evolution of the gender wage gap between and within firms over the life course.
The Role of Firms in the Gender Wage Gap in Germany
Gender Equality at Work
4. The age‑profile of the gender wage gap and the role of job mobility
4.1. The age‑profile of the gender wage gap
4.1.1. The gender gap in earnings increases sharply around the age of childbirth in Germany partly due the tendency of women to move into part-time work when becoming mothers
The gender gap in earnings exhibits a particularly strong age profile in Germany. The gender gap in earnings increases from less than 20% at age 25 to more than 50% at age 55, with most of the increase taking place between ages 30 and 40. The bulk of the increase is driven by the growth in the hours gap, which triples between ages 25 and 55. The increase in the hourly wage is also significant, as it more than doubles over the same period. While the benchmark countries considered also tend to show rising age profiles, the increase is much stronger in Germany.
The evolution of the gender wage gap over the working life is unlikely to be driven by changes in the characteristics of men and women in the workforce due to cohort or selection effects (see Box 4.1). While both selection and cohort effects have a tendency to amplify the increase in the gender wage gap with age, the present analysis already takes account of these effects to an important extent. Moreover, the qualitative pattern is unchanged when controlling for selection effects in a more comprehensive way through the inclusion of worker fixed effects or when focusing of the age‑profile of the gender wage gap of individual birth cohorts.
The significant increase in the gender wage gap in Germany is concentrated in a period in which men tend to experience considerable wage growth, partly driven by high job mobility, while women tend to make less progress, in part because of career breaks and the move into part-time work after maternity leave. This suggests that motherhood, including the shift towards part-time work, prevents women from taking advantage of opportunities for career advancement, by limiting job mobility within and between firms (Barth, Kerr and Olivetti, 2017[43]; Kleven et al., 2019[44]; OECD, 2017[39]). The large shift towards part-time work after childbirth in Germany is likely key for understanding the sharp increase in the gender wage gap between ages 30 and 40.
Figure 4.1. The age‑profile of the gender gap in earnings, wages and hours
Note: Decomposition of gender earnings gap between similarly-skilled women and men at each age into the gap in hourly wages and the gap in working time. The earnings and wage gaps between similarly-skilled women and men are estimated by regressing respectively log earnings or log wages on a gender dummy, education/occupation dummies (education/occupation is not available for Austria), flexible earnings-age profiles by gender and decade‑of-birth dummies to control for cohort effects. The hours gap between similarly skilled women and men is obtained by taking the difference between the (residual) gap in earnings and the (residual) gap in wages. For the Netherlands and Sweden, there is information on hourly wages but not working time. Information on the average gap in working time – not by age – is obtained from the OECD Employment Database.
Box 4.1. The role of cohort and selection effects in the age‑profile of the gender wage gap
Analysing the age profile of the gender wage gap is challenging as it requires taking account of changes in the composition of the workforce as a result of selection and cohort effects.
Selection effects
Selection effects arise when the composition of men and women in employment changes with age; they can have important implications for the age‑profile of the gender wage gap.1 The baseline analysis controls for selection into employment based on the observable characteristics of workers (e.g. education). There may however also be selection into employment based on the unobservable characteristics of workers. To get a sense of its empirical relevance, Figure 4.2 compares the age profile of the gender wage gap that is obtained using the baseline specification (Goldin et al., 2017[31]) with the one that is obtained controlling for the unobservable characteristics of workers through the inclusion of worker fixed effects (Abowd, Kramarz and Margolis, 1999[45]; Dostie et al., 2020[46]). While the qualitative picture is similar using the two specifications, controlling for worker fixed effects tends to reduce the increase of the gender wage gap with age (particularly in the benchmark countries). In other words, the growing gender wage gap with age in the baseline specification to some extent reflects the role of rising differences in unobservable skills (as women are more negatively selected in employment at higher ages relative to men).
Figure 4.2. The role of worker composition in the age‑profile of the gender wage gap
Note: GKOB (Goldin et al., 2017[31]): the wage gap between-similarly-skilled men and women is obtained from a regression of log wages on a gender dummy, education/occupation dummies (education/occupation is not available for Austria, and Estonia), flexible earnings-experience profiles and decade‑of-birth dummies to control for cohort effects. AKM (Abowd, Kramarz and Margolis, 1999[45]): time‑invariant characteristics are replaced by an individual fixed effect. Reference period: 2002‑18 for Germany; 2010‑19 for the Netherlands; 2002‑18 for France; and 2002‑17 for Sweden.
Cohort effects
Cohort effects can affect the age profile of the gender wage gap when the composition of women and men in employment varies across birth cohorts due to, for example, gradual improvements in educational attainment of women relative to men or rising female labour force participation. Disentangling cohort effects from age and time effects is not possible due to their linear dependence. The present analysis controls for cohort effects to some extent by controlling for education and the inclusion of decade‑of-birth fixed-effects by gender (Barth, Kerr and Olivetti, 2021[47]). Cohort effects are identified by restricting time fixed effects to be common across sexes. Since this is unlikely to be imperfect, it is instructive to compare the age profile of the gender wage gap that is documented in the main text with that of individual birth cohorts. This suggests that from a qualitatively perspective the age profile in the main text is similar to the average profiles across birth cohorts.
Figure 4.3. The age‑profile of the gender wage gap by birth cohort
Note: While selection effects in principle can also affect cross-country comparisons of the gender wage gap, this is unlikely to be a major issue in the present contest since the countries considered here are all characterised by rather small gender employment gaps.
4.2. The age profile of the gender wage gap within and between firms
4.2.1. The increase in the gender wage gap with age in Germany reflects growing wage gaps within and between firms
The rising gender wage gap with age in Germany reflects both growing wage gaps within and between firms (Figure 4.4). Growing wage gaps between firms may indicate that women following childbirth increasingly sort into low-wage firms. As discussed in the previous sub-section, this may in part be related to the possibility that low-wage firms are more likely to offer part-time work arrangements. The gender wage gap between firms also increases in the benchmark countries but the increase tends to be smaller and is less concentrated around the age of childbirth than in Germany. Growing wage gaps within firms indicate that women advance less quickly to better jobs within firms or experience smaller wage increases when staying in the same job than their male counterparts. The age‑profile of the gender wage gap within firms varies across the benchmark countries: it increases in the Netherlands and France, remains broadly stable in Sweden and declines in Denmark.
Figure 4.4. The gender gap within and between firms rises more strongly in Germany than other selected countries
Note: Decomposition of gender wage gap between similarly-skilled women and men within firms and between firms by age. The wage gap between-similarly-skilled women and men is obtained from a regression of log wages on a gender dummy, education/occupation dummies, flexible earnings-experience profiles and decade‑of-birth dummies to control for cohort effects. Reference period: 2002‑18 for Germany 2010‑19 for the Netherlands; 2002‑18 for France; 2001‑17 for Denmark; and 2002‑17 for Sweden. Average: Simple average across countries shown.
4.2.2. The increase in the gender wage gap within firms in Germany as well as in other countries reflects growing differences in tasks and responsibilities
The increase in the gender wage gap within firms with age in Germany most likely reflects growing differences in tasks and responsibilities rather than growing differences in pay for work of equal value (Figure 4.3). The evidence does not suggest that the component associated with bargaining or discrimination varies substantially over the working life. A limitation of the present analysis is that it only captures changes in bargaining and discrimination that result from the sorting of women across firms that differ in their wage‑setting practices between women and men. The wage‑setting practices of firms themselves are assumed to be invariant to the individual circumstances of men and women. To the extent that firms pay lower wages to mothers because their labour supply decisions are less sensitive to wages, this will be reflected in the average component associated with bargaining and discrimination and not in its age profile.
Figure 4.5. The role of differences in tasks and responsibilities, pay for work of equal value and firm wage‑setting practices in the evolution of the gender wage gap over the life‑course
Note: Decomposition of gender wage gap between similarly-skilled women and men in components related to differences in tasks and responsibilities, pay for work of equal value and firm wage‑setting practices (see Box 2.1 for detail). The wage gap between similarly-skilled women and men is obtained from a regression of log wages on a gender dummy, education/occupation dummies, flexible earnings-experience profiles and decade‑of-birth dummies to control for cohort effects. Reference period: 2002‑18 for Germany 2010‑19 for the Netherlands; 2002‑18 for France; 2001‑17 for Denmark; and 2002‑17 for Sweden. Average: Simple average across countries shown.
4.3. The role of job mobility within and between firms
The rise in the gender wage in Germany around ages 30 to 40 reflects the fact that women fall increasingly behind relative to men both in terms of the firms for which they work and the work they do in those firms. The shift towards part-time work around the age of motherhood may be an important factor in explaining why women move to another firms and the prospects for moving to better jobs within firms. To shed more light on these issues, this sub-section focuses on the gender gap in job mobility between and within firms.
4.3.1. The gender gap in promotions accounts for much of the increase in the gender wage gap with age
A significant part of the gender wage gap and its increase with age reflects growing gender segregation across occupations within firms. One explanation for this may be that men are more likely to be promoted. Promotions in principle can be measured by focusing on worker transitions to higher paid occupations or alternatively by large wage increases from one year to the next as in Bronson and Thoursie (2020[48]). The analysis here focuses on significant wage increases since this measure can be computed in the same way irrespective of the type of information that is available on occupations (wage increases are trimmed of extreme values). Since there is no information for Germany, the analysis focuses again on full-time workers (unless specified otherwise). This is an important limitation since OECD (2021[1]) documents that the gender gap in promotions is to an important extent related to the lower incidence of promotions among part-time workers.
Women are less likely to be promoted at any age as men and this contributes to much of the increase in the within-firm gender wage gap with age (Figure 4.6). The gender gap in promotions gradually increases with age in Germany, while in the benchmark countries it is highest when women are in their thirties. Conditional on being promoted, young women tend to experience similar wage increases as men, while men experience larger wage increases from the age of 35 in Germany. In the benchmark countries, women experience slightly higher wage increases than men conditional on being promoted (Panel B). Gender differences in the incidence of promotions account for an increase in the gender wage gap within firms of 4 percentage points from age 25 to age 45 in Germany (80% of the increase within-firm gender gap) and 2.5 percentage points in the benchmark countries (75% of the increase within-firm gender gap) (Panel C).1 These findings are qualitatively similar to those by Bronson and Thoursie (2020[48]), who find that promotions account for 70% of the increase in the gender wage gap by age 45 in Sweden.
4.3.2. The increase in the gender wage gap between firms with age is driven by gender differences in the nature of job mobility rather than its extent
In Germany, there are no significant gender differences in the extent of job mobility between firms, whereas on average across benchmark countries, women are less likely to change firms than men, particularly around the typical age of childbirth (Figure 4.7, Panel A). When women change firm, this is associated with smaller average increases in firm wage premia than for men in Germany as well as in the benchmark countries (Panel B). According to OECD (2021[1]), this reflects the lower incidence of promotions, i.e. significant wage increases, when changing firms. In other words, women appear to change jobs to a lesser extent for wage and career considerations and more often for personal reasons, such as having more flexible working time arrangements, working closely from home or following a partner. Indeed, it is the nature of job moves that explains most of the increase in the gender gap between firms over the life‑course, while the number of job moves plays a secondary role (Panel C). In Germany, gender differences in job mobility account for about 16% of the increase of the between-firm gender wage gap up to age 45. In the benchmark countries, gender differences in job mobility account for 65% of the increase in the gender wage gap between firms up to age 45.2
Figure 4.6. The role of promotions in the gender gap within firms over the life‑course
Note: The probability of being promoted is defined as the share of persons in employment at t‑1 experiencing a significant increase in pay between t and t‑1 of more than 10% relative one’s co-workers in the same firm. Average across the following countries: Denmark, France, the Netherlands, and Sweden. Reference period: 2002‑18 for Germany 2010‑19 for the Netherlands; 2002‑18 for France; 2001‑17 for Denmark; and 2002‑17 for Sweden.
Figure 4.7. The role of job-to-job mobility in the gender wage gap between firms over the life‑course
Notes: Job-to-job mobility rate is defined as the number of workers changing firm between year t and t‑1 as a share of employment in year t‑1. Average across the following countries: Denmark, France, Hungary, the Netherlands, Portugal. Reference period: 2002‑18 for Germany 2010‑19 for the Netherlands; 2002‑18 for France; 2001‑17 for Denmark; and 2002‑17 for Sweden.
Box 4.2. The role of part-time status for job mobility between firms in Germany
When considering all workers, irrespective of working-time status, women are more likely to move between firms than men (Figure 4.8, Panel A). The reason for this is that women are more likely to work part-time and that part-time workers are more likely to change jobs. Conditional on working-time status, the probability of changing jobs is either similar or larger for men. When considering all workers, including part-timers, women experience smaller increases in firm wage premia when changing firms (Panel B). Part-time workers who change jobs experience smaller wage increases than full-time workers. The difference is particularly pronounced for older workers. Indeed, older workers aged over 40 often experience a reduction in the firm wage premium when moving between firms. In sum, the high prevalence of part-time status among women does not only affect their monthly earnings but also hurts their career prospects by preventing them from climbing the wage ladder at the same pace as men.
Figure 4.8. The role of part-time status for job mobility between firms in Germany
Notes: Job-to-job mobility rate is defined as the number of workers changing firm between year t and t‑1 as a share of employment in year t‑1. Reference period: 2002‑18.
4.3.3. Policies should be made more supportive of job mobility within and between firms
Systematic gender differences in the extent and nature of job mobility between and within firms reflect important differences in opportunities for career advancement between men and women. Policies and institutions that can support the upward mobility of women within and between firms are therefore key. This includes family policies that contribute to a more equal sharing of household responsibilities – e.g. incentivising fathers to take more parental leave, as well as a more equal sharing of part-time work – e.g. universal childcare, reducing effective marginal tax rates on second earners (Chapter 6 and (OECD, 2017[3]; OECD, 2019[4]).
Notes
← 1. Differences in the probability of being promoted keeping constant differences in wage increases (quantity effect) and the differences in the nature of promotions keeping constant differences in probability (wage effect) both account for about half of the evolution of the gender wage gap between age 25 and 45.
← 2. One explanation for this difference may be the contribution of job-to-job mobility to the evolution of the gender wage gap is likely to be larger when taking account of part-time workers (see Box 4.2). However, it should be noted that the contribution of job-to-job mobility to the evolution of the gender wage gap is actually similar to that observed in the benchmark countries. But, since the actual increase in the between-firm gender wage gap with age is more pronounced in Germany than in the benchmark countries, its contribution to the increase in the actual between-firm gender wage gap is smaller.