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GENDER PAY GAP MAKES WOMEN LESS LIKELY TO MOVE FIRMS

Women are typically less mobile between employers because most of them earn less than their partners. But at the same time, firms take advantage of women''s lower likelihood of changing jobs by paying them less, thus reinforcing the gender pay gap.

These are among the findings of research by Christian Bredemeier, to be presented at the Royal Economic Society''s annual conference in Brighton in March 2016. His study reveals that close to 90% of the gender differences in inter-firm mobility can be attributed to earnings differences between men and women. And evidence on inter-firm mobility can explain two fifths of current gender wage gap in the United States.

According to this analysis, two-earner families value relative wage differences between jobs less for women because of the gender wage gap. Hence, when choosing women''s jobs, other aspects are relatively more important – which implies that, on average, women work in jobs that they like more than men do theirs. This can explain the empirical evidence that women are typically more satisfied with their jobs than men despite wage gaps and glass ceilings.

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In a nutshell, this study offers an explanation for women''s lower inter-firm mobility, quantifies its importance and discusses some interesting implications.

Previous empirical research has documented that women are, on average, less mobile between firms than men. This is to say that when a firm''s pay falls below that of competitors, the firm loses a larger share of its male employees to other firms than of its female employees. That women more often accept lower pay gives firms power to pay less to women, which contributes to the gender wage gap. Stylised evidence on inter-firm mobility can explain two fifths of current gender wage gap in the United States.

This research argues that women are, on average, less mobile between employers because most of them earn less than their respective partners. The author sets up a formal model that makes this relation explicit but it is actually quite intuitive. Consider a firm that cuts pay by 1% and workers'' decisions whether to stay at this firm or quit. Workers weigh the costs of staying (the income loss) against the costs of quitting.

This study''s explanation builds on the costs of staying being lower for secondary earners in couple households – obviously, 1% of the secondary earner''s income is less than 1% of the primary earner''s income and, if partners share their income, a pound is a pound for the household independent of who brings it home. Hence, given any cost of quitting, a couple accepts the pay cut rather for the secondary earner.

Note that this explanation does not build on any differences between genders per se. In fact, the model predicts that while women are, on average, less mobile between firms than men, they are not substantially less mobile than men with similar earnings positions. This aspect of this theory is consistent with empirical evidence on job mobility that controls for labour market characteristics of the considered individuals.

Since it is possible that the costs of quitting differ by gender, it is important to quantify the mechanism above. The analysis reveals that close to 90% of the gender differences in inter-firm mobility can be attributed to earnings differences between genders.

Arguing that women are less mobile between firms because they earn less than men implies a circular relationship between relative wages, earnings and mobility because firms make use of women''s lower mobility and pay them less. This circular relationship magnifies the effects of any development or policy that raises women''s relative wages, earnings or mobility.

Turning to the gender wage gap, the analysis implies that we understand more about its sources than we thought:

• First, economists'' usual methods for decomposing the wage gap into explained and unexplained components only take into account the direct effects of explanatory factors and hence do not catch their full impact on the wage gap.

• Second, this new analysis suggests some further explanatory factors, namely all factors that affect women''s labour supply also affect women''s inter-firm mobility and firms'' ability to keep down women''s wages.

The analysis also has an interesting implication regarding the consequences of the gender wage gap for job satisfaction. In the model, couples value relative wage differences between jobs less for women due to the gender wage gap. Hence, when choosing women''s jobs, other aspects are relatively more important such that women, on average, work in jobs they like more than men do theirs. This can explain the empirical evidence that women are, on average, more satisfied with their jobs than men despite wage gaps and glass ceilings.

''Wage gaps, earnings gap, and the market power of employers'' – Christian Bredemeier