Going Behind the Gender Wage Gap: Are Women Less Educated or Are they in Worse Firms?

Anja Heinze, Centre of European Economic Research (ZEW)

Using linked employee-employer data, this paper measures and decomposes the differences in the earnings distribution between male and female employees in Germany. I extend the traditional decomposition to disentangle the effect of human capital characteristics and the effect of firm characteristics in explaining the gender wage gap. Furthermore, I implement the decomposition across the whole wage distribution with the method proposed by Machado and Mata (2005). Thereby, I take into account the dependence between the human capital endowment of individuals and workplace characteristics. My decomposition detects that female employees are better educated then men in the lower tail of the wage distribution but that they work in inferior firms. In the upper tail of the distribution men and women work in similar firms but the female employees have less human capital.