The gender wage gap differs substantially across countries. For instance, here's the gender wage gap (as a percentage of the male wage) across OECD countries for the latest available year (from here):
It's not easy to see (go to the source for a bigger version), but the blue column is New Zealand (4.6 percent), the black is the OECD average (11.6 percent), the red is Australia (12.3 percent), and the purple is the U.S. (17.7 percent). The column at the far right, at a whopping 31.5 percent, is South Korea. But what explains these differences? Some of the difference no doubt arises from policy differences, but how much of it is cultural differences?
That is the question that is addressed in this new NBER Working Paper (sorry, I don't see an ungated version online) by Natasha Burns (University of Texas at San Antonio), Kristina Minnick (Bentley University), Jeffry Netter (University of Georgia), and Laura Starks (University of Texas at Austin). They look specifically at the gender wage gap for corporate executives, reasoning that:
...studying compensation at the executive level gives us the advantage of a particularly competitive market (due to the level of compensation and the frequent use of consultants) which should result in lower gender compensation gaps...
The competitive nature of the labour market for corporate executives should also abstract away some of the inefficiencies that are more likely to be present in other labour markets. Burns et al. use data on executive compensation from Standard and Poor's Capital IQ. Their data covers 31 countries over the period from 2004 to 2016. For cultural differences, they construct measures using data from the World Values Survey. As they explain:
We first consider a group of WVS questions directly related to values, attitudes, and beliefs regarding women, specifically, questions covering women’s entitlement to education, the role of women in society, and leadership abilities of men versus women...
We also employ a group of WVS questions that we expect to be related to values, attitudes, and beliefs regarding women. These questions focus on religion, the acceptance of violence toward women, and intolerance in the society...
We also employ a measure of the justification of violence towards women and children as an additional way to capture cultural attitudes toward women...
Finally, we use a group of variables that more generally capture a society’s values, attitudes, and beliefs about work, success, markets and ethics, which should reflect views toward executive compensation in general, as these variables have been employed in previous research.
That gives Burns et al. a battery of different measures of the dimensions of culture (specifically limited to dimensions related to gender attitudes and work attitudes), which they reduce further to three factors using principal component analysis. Those three factors are labelled F1 (Religion, Violence, Intolerance, and Corruption), F2 (Gender education and Gender work), and F3 (Hard work, Individualism, and Trust).
Turning to their results, Burns et al. first show that:
...there exist significant gender gaps in compensation for the top executives. Across all countries the average compensation for male CEOs is $1.81mm compared to $1.41mm for female CEOs.
There is also a gender pay gap for other executives at levels lower than CEOs, but the gap is somewhat smaller. The gap also varies significantly between countries. To explain the differences, they first regress executive wages on gender, controlling for age, tenure, job title, year, and industry, as well as a number of firm characteristics. They find that:
...the average gender gap is not small as the coefficient shows an average gender pay gap of 16.6% across all countries and executive positions.
Next, adding cultural variables into their models, they find:
...executive compensation to be significantly related to each of these cultural variables on its own and when interacted with the female gender indicator...
Specifically, in relation to the three cultural factors:
...executive compensation loads negatively on factor F1 (Religion, Intolerance, Violence, Corruption). Thus, in societies in which these cultural beliefs and attitudes are more prevalent, the results suggest lower compensation for all executives. In addition, the interaction term between F1 and gender suggests that the reduction in compensation is even greater for women executives in the countries that rank higher in these dimensions. The comparison between the F1 results and the Model 2 F2 (Gender_education and Gender_work) results or the Model 3 F3 (Hardwork, Individualism and Trust) results are striking. The level of executive compensation in general is positively related, and the gender gap is negatively related, to the cultural norms reflected in F2 and F3. These results support the hypotheses that overall compensation is greater and the gender gap is smaller in societies that believe women are entitled to equal education, that value women’s roles in the workplace, hard work and individualism, and where trust is higher.
So, how much of the gender wage gap for executives is explained by culture? Burns et al. employ an Oaxaca-Blinder decomposition, which shows that:
...when we use the three factors from the factor analysis, the unexplained portions reduce from 58% to 7.4% for CEOs, 48% to 21.7% for the Top 3 Executives, and 49.2% to 39.1% for the Other Executives.
That means that the control variables explain 42 percent of the variation in CEO wages (leaving 58 percent unexplained), and the cultural variables (F1, F2, and F3) reduce the unexplained fraction to 7.4 percent. Cultural differences explain around half (50.6 percent) of the gender wage gap for CEOs. The corresponding fraction for top three executives (president, COO, and CFO) is 27.3 percent, and 10.1 percent for other executives.
What is interesting is that more of the gender pay gap is explained by cultural differences for CEOs than for less highly ranked executives. Burns et al. don't really offer much of an explanation as to why that might be. It would be interesting to see if extends down to middle management and below (by which time, following the decreasing trend, cultural differences may not explain much if any of the gender wage gap).
It would be easy to take the results of this paper, and be a bit fatalistic about efforts to reduce the gender wage gap, because culture is not easy to change. However, Burns et al. provide some evidence that policy change can matter. They look at the gap before and after the introduction of paternity leave laws and board diversity laws, finding that the gender wage gap decreases significantly in each case (although, I think the results of those analyses seem implausibly large, and Burns et al. don't provide any discussion of the effect size, which suggests that they might also doubt the results).
Still, this is an interesting paper, which points to the importance of cultural differences in contributing to the gender wage gap. No doubt there is more research to come in this space.
[HT: Marginal Revolution]
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