Gender Differences in Sorting

• Author: Dario Pozzoli,Pierpaolo Parrotta,Luca Paolo Merlino
• Date: 01 October 2018
• DOI: http://doi.org/10.1111/irel.12216
• Published date: 01 October 2018

Gender Differences in Sorting*

LUCA PAOLO MERLINO , PIERPAOLO PARROTTA and

DARIO POZZOLI

In this paper, we investigate gender differences in workers’career development

within and outside the firm to explain the existence of gender wage gaps. Using

Danish employer–employee matched data, we find that good female workers are

more likely to move to better firms than men but are less likely to be promoted.

Furthermore, these differences in career advancement widen after the first child is

born. Our findings suggest that career impediments in certain firms cause the most

productive female workers to seek better jobs in firms in which there is less

gender bias.

Introduction

Recent studies exploit the availability of matched employee–employer data

to report that wage gaps between male and female workers arise as a result of

segregation in lower-paying occupations, in less-productive establishments and

in lower-paying occupations within establishments (Bayard et al. 2003; Heller-

stein and Neumark 2008). Card, Cardoso, and Kline (2016) found that, while

women negotiate lower wages than men with the same employer, they are also

.

JEL: J16, J24, J62.

*The authors’affiliations are, respectively, University of Antwerp and Universit

e Paris 1- Panth

eon Sor-

bonne, Antwerp Belgium. E-mail: LucaPaolo.Merlino@uantwerpen.be; ICN Business School, Bureau

d’



Economie Th

eorique et Appliqu

ee (BETA), Institute for the Study of Labor (IZA), Research Centre for

Education and the Labour Market (ROA), and Aarhus University, Nancy, France. E-mail: pierpaolo.

parrotta@icn-groupe.fr; and Copenhagen Business School, Institute for the Study of Labor (IZA), and Aar-

hus University, Frederiksberg, Denmark. E-mail: dp.eco@cbs.dk. The authors thank Estelle Cantillon, Fran-

cis Kramarz, Fane Groes, Rafael Lalive, Patrick Legros, Nina Smith, and the participants of the COSME

workshop (2013), the Search and Matching Conference (2014), and the workshop on Gender and Ethnic

Differentials (2014) for their helpful comments and suggestions. They gratefully acknowledge funding from

the Danish Council for Independent Research|Social Sciences, Grant no. x12-124857/FSE; LMDG, the

Department of Economics and Business, Aarhus University; the ERC through grant 208535; the Wiener

Wissenschafts-, Forschungs- und Technologiefonds (WWTF) under project fund MA 09-017; the Carlsberg

Foundation; and the Swiss National Centre of Competence in Research LIVES and FNRS. The data used in

this paper build on anonymized micro datasets owned by Statistics Denmark (SD). In the interest of scien-

tific validation of analyses published using DS micro data, the Department of Economics and Business, Aar-

hus University, will assist researchers in obtaining access to the dataset. The usual disclaimer applies.

INDUSTRIAL RELATIONS, DOI: 10.1111/irel.12216, Vol. 57, No. 4 (October 2018).

©2018 Regent s of the Univers ity of Calif ornia Published by Wiley Periodicals, Inc., 350 Main Street,

Malden, MA 02148, USA, and 9600 Garsington Road, Oxford, OX4 2DQ, UK.

671

less likely to work in firms that pay higher premiums to either gender. These

studies show that wage gaps in the labor market are related to gender differ-

ences in the extent to which better workers are employed in better positions,

i.e., in the degree of positive assortative matching (Becker 1973).

Our paper differs from the existing literature because it explains the gender

gap from a new perspective by examining workers’career development within

and outside the firm. When we examine gender differences in sorting in Den-

mark, surprising patterns emerge. Female workers of good types (proxied by

the residual predicted from a Mincerian log-wage regression) are more likely

to move to a better firm than similarly ranked male workers, conditional on

workers changing employers. This is quite puzzling given the significant gen-

der wage gap in Denmark (around 15 percent in the Danish private sector—

see Gallen 2015) and that the representation of women among legislators,

senior officials, and managers is relatively low.

1

We then turn our attention to transitions within the firm to determine

whether there are gender biases in promotions. There, a quite different pattern

emerges: male workers of good types are more likely to be promoted than sim-

ilarly ranked female workers conditional on workers not changing employers.

The objective of this paper is to explain this apparently conflicting evidence

by accounting for the fact that workers move up the job ladder in two ways:

either they are promoted by the current employer, or they find a better

employer. Studying career development within and outside the firm as a unified

sorting problem allows us to relate the patterns that we observe. Our findings

suggest that career impediments in certain firms cause the most productive

female workers to seek better jobs in firms with less gender bias. In our inter-

pretation, segregation and gender gaps emerge because of the costs associated

with changing employers combined with the career impediments that female

workers face. As a result, consistent with the findings of Card, Cardoso, and

Kline (2016), only the best female workers can pursue career advancement via

job transitions, and they climb the occupational ladder more slowly than men.

To detect sorting patterns, we apply and extend the methodology proposed

by Bartolucci and Devicienti (2013) to study both internal and external career

advancements across genders. In particular, (1) we exploit within-firm variation

in wages to rank workers within firms and conditional on observables. Intu-

itively, while a worker’s type is not observable to the econometrician, it is

observable to the firm, which then pays her/him accordingly. Furthermore, (2)

we use profits to rank firms, as maximizing profits is an objective for all firms.

1

According to the 2015 Global Gender Gap Report (World Economic Forum 2015), Denmark ranks

fourteenth and eight-first (out of 145 countries) on the gender wage gap and on the gender gap among legis-

lators, senior officials, and managers.

672 / LUCA PAOLO MERLINO,PIERPAOLO PARROTTA,AND DARIO POZZOLI

In a stylized theoretical framework, we demonstrate that this estimation strat-

egy allows us to analyze gender differences in sorting both within and across

firms when workers care about wages.

We then use these rankings to predict separately by gender (1) the probabil-

ity that a worker moves to a better firm, i.e., a firm that makes higher profits,

conditional on changing firms (being a mover), and (2) the probability of being

promoted to a higher occupational level conditional on staying employed in a

given firm (being a stayer). In our analysis, we use Danish employer–employee

matched data for two important reasons. First, a representative and large sam-

ple of both workers and firms allows us to trace workers’career developments.

Second, Denmark has a very flexible labor market, similar to that in the United

States. Hence, our analysis is relevant beyond the case of Denmark.

In line with the predictions of our theoretical framework, when we plot the

probability of a job transition against a worker’s type, we find a U-shaped rela-

tionship that is steeper for transitions to a better firm: while bad workers are likely

to be replaced, the best workers are likely to move to better firms (Figure 1).

The findings depicted in Figures 2 and 3 that positive sorting is stronger in

job transitions but weaker in promotions for female workers are confirmed by

our regression models in which we add several controls. Specifically, a one-

standard-deviation increase in the log of lagged wages increases the probability

of moving to a better firm by 2 percent for female workers and by approxi-

mately half as much for male workers, while it increases the probability of

promotion by 19 percent for female workers and by 31 percent for male work-

ers. These gender differences are sizable, significant, and stable, as they arise

in a number of different specifications and tests. Most important, the same pat-

terns emerge when we use other methods to rank workers and firms.

Note, however, that if all firms had the same attitude toward female workers,

we would observe the same sorting patterns in transitions both within and

across firms. Thus, our findings strongly indicate that female workers face more

career impediments in certain firms and that they attempt to overcome these

barriers by searching for better jobs in fairer companies. This interpretation is

further corroborated by the fact that negligible gender differences arise when

we examine promotions to higher occupational levels in the firms to which

good female workers tend to move. Such firms are also highly profitable, which

suggests that the best firms are those with nondiscriminatory policies.

2

The gender differences in sorting that we uncover for job transitions are

possibly explained by female and male workers pursuing different routes to

2

Less-profitable discriminatory firms may survive competition with nondiscriminatory firms for several

reasons. First, social enforcement may result in less lost profit in discriminatory firms. Second, there may be

clients with discriminatory tastes. Third, search frictions may facilitate social enforcement.

Gender Differences in Sorting / 673