ISER Working Paper Series 2006-59
Is it the way she moves? New evidence on the gender wage growth gap in the early careers
31 Dec 2006
A vast and still growing literature analyses discrepancies in pay between men and women and their possible explanations. This paper contributes to these efforts by investigating gender differences in pay which emerge during the initial stages of a worker's career. In particular, our analysis focuses on early career wage growth and on the way it contributes to the formation of the gender wage gap. This is because it has been shown that wage growth in the first ten years of a worker's experience accounts for over two thirds of lifetime wage growth, so that the early stages of a worker's career represent the period in which most of the observed gender differences are likely to emerge.
Our data is derived from the Italian Social Security Administration (INPS) archives to form a 1:90 random sample of private sector employees. Information on these individuals and the firms which employ them is collected every year, so it is possible to derive continuous labour market histories for each worker over the period between 1985 and 1997.
The data shows that although there seems to be very little difference between male and female wages at entry (about 3 per cent), the gap widens rapidly over time. By the end of the first ten years of experience real wages are 37.4 per cent higher for men but only 27.6 higher for women. This translates into an average gender wage differential of about 14 per cent, which becomes 18 per cent if we consider only workers with lower education levels. Moreover, we see that gender differences in log wage growth are strongly related to job mobility in that men and women experience similar rates of within firm wage growth but significantly different rates of between firm wage growth.
The significant association between job mobility and gender differences in log wage growth could simply be the result of different individual characteristics or it could reflect a significant degree of discrimination in the labour market, whereby women are more subject to involuntary separations or find it systematically more difficult to negotiate their salary when moving to a different employer.
We investigate these different hypotheses and we find that: (i) observed and unobserved individual characteristics are not able to explain the observed gender mobility penalty, and (ii) the most significant differences are found among voluntary moves, defined here as those which occur within a very short period of time, involve positive wage growth and the highest salary increases. We also find that there is not a perfect correspondence between the timing of job changes and fertility or marriage, so that these events are unlikely to be a direct explanation of the gender mobility penalty.
This leads us to speculate that the gender gap might be explained by differences in the process of job search and therefore by different characteristics of the job or the employer. It turns out that once we control for the specific types of changes into different industries, occupations, firms of various sizes and provinces, we are able to account for the entire gender gap in between firm wage growth. In particular, the gender penalty is higher when workers move towards larger firms and we show that this is because women value more than men certain characteristics of the jobs offered by these employers.
Overall we can say that the existence of a gender wage growth gap in the Italian labour market is explained to a large extent by the characteristics of the job or the employer rather than differences in worker characteristics or across-the-board discrimination. The family formation process may be important, but only insofar as it influences the process of job search and leads women to value more certain non-monetary aspects of the job when moving to a different employer.