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Development and Reform Research Team University of Bologna The Gender Earnings Gap inside a Russian firm: First Evidence from Personnel Data [work in progress] Thomas Dohmen (ROA, Maastricht University, IZA and DIW) Hartmut Lehmann (DARRT, University of Bologna, IZA, CERT, WDI and DIW) Anzelika Zaiceva (DARRT, University of Bologna and IZA) Higher School of Economics, Moscow October 14, 2008

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Development and Reform Research Team University of Bologna 2 Outline Motivation and background Theoretical models Empirical literature & this paper Data & the firm Methodology Gender earnings gap at the mean and across the distribution Potential explanations of its dynamics Potential reasons for its existence Concluding remarks and future research

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Development and Reform Research Team University of Bologna 3 Motivation Personnel economics: industrial relations within a firm (not a Black Box) Gender differences in pay, job assignments and promotions in the internal LM Advantages: detailed look at the internal labor market. Disadvantages: not representative Few empirical studies data unavailability (wages are often missing) No study for transition economies: interesting context because of the (exogenous) shock and change in industrial relations and family-related policies

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Development and Reform Research Team University of Bologna 4 Motivation contt Russia is (one of) the largest transition economy (1st in terms of area, 2nd in terms of population) After the break-up of the USSR in 1991: GWG (widening of the wage distribution) to 35% by mid-1990s, then to 15% in early 2000 (Brainerd, 2000; Reilly, 1999; Kazakova, 2007) Occupational segregation, wage arrears, discrimination (Gerry et al., 2004; Ogloblin, 1999; Kazakova, 2007) Not controlling for segregation at the level of establishment and jobs overstates the role of occupational and/or industry segregation in the economy (Bayard et al., 2003) What are the patterns of the firm-level GWG in Russia? Reasons behind GWG? Within-firm within-occupation segregation? Gender differences in job assignments and promotions?

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Development and Reform Research Team University of Bologna 5 Transition-specific background Under communism: Gender equality (formally) High LM participation of women Low GWG Segregation into female occupations Economic winners and losers from transition (Brainerd, 1998) Changes were more pronounced for women (UNICEF, 1999; Brainerd, 2000; World Bank, 2002; Malceva and Roshin, 2006)

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Development and Reform Research Team University of Bologna 6 Transition-specific background (contd) Supply side: collapsing welfare system and childcare facilities sharp increase in unemployment decrease of public employment home production as an outside option Demand-side: enterprise restructuring ranged from labour hoarding to mass lay-offs decentralised system of wage bargaining or firm-level negotiations increasing competition and emergence of hard budget constraints Implications for gender segregation and discrimination in the labor market

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Development and Reform Research Team University of Bologna 7 Theoretical models Becker (1957): taste-based discrimination Kremer (1993): productivity differences between men and women and sorting into firms Both predict segregation Becker (1985): effort is lower for females due to more extended household work and childcare (incr. returns to specialization) Lazear and Rosen (1990): women have a higher separation probability and need a higher ability threshold level to be promoted; promotion rates (and thus wages) do not differ by gender at very high levels of ability; female wages are lower because they are underrepresented in high-paying jobs (segregation) Booth et al. (2003): promotion may not automatically mitigate the gender wage gap (upon promotion women might have less outside options)

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Development and Reform Research Team University of Bologna 8 Empirical literature Using personnel data reduces unobserved heterogeneity (Kunze, 2008) It is possible to more credibly investigate whether wage gaps still exist when job characteristics and rank are controlled for (Kunze, 2008) In general, literature finds gender differences in pay, mobility and promotion opportunities within a firm in Western economies (see, among others, Ransom and Oaxaca, 2005 for the US; Jones and Makepeace, 1996 for the UK) Barnet-Verzat and Wolff (2008) use personnel data on executives in a French firm, control for hierarchical levels and find evidence of the glass ceiling effect (i.e. wage gap is higher at the highest quantiles of the wage distribution)

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Development and Reform Research Team University of Bologna 9 This paper Uses unique personnel data from a manufacturing firm in Russia Documents the evolution of the GEG over 1997-2002 Analyses potential reasons behind the gender gap and its change Analyses gender differences in job assignments and promotion opportunities (to be completed)

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Development and Reform Research Team University of Bologna 10 The firm A firm operating in one of the Central Russian oblast in the machine building and metal works sector producing equipment for gas and oil production and smith-press equipment Out of 17 Central Russian oblasts, oblast, where firm, is 8 th in terms of wage levels (2006 data) The ratio of females to males wages (wf / wm) in this oblast in industry constituted 66% in 1999, 67% in 2001, 62% in 2002 and 64% in 2003 In 2005, the occupational distribution of the females to males wages ratio in this oblast was as follows: Managers: 70% Specialists: 67% Other employees: 65% Workers: 50%

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Development and Reform Research Team University of Bologna 11 The firm (contd) The firm operates in a product market characterized as follows: 6.2% export share (CIS): the vast majority -for Russian market no regional competitor more than 5 competitors in the Russian market, among them firms from the EU It was founded in the 1950s and privatized in 1992: ownership structure (in 2002): workers/employees/managers (53.1%) former employees (21.5%), Russian entities (25.4%) caveat: top management seems to have decisive majority (interview with CEO); In 2007 about 3400 employees; Formally there is collective wage bargaining at the firm but trade union officials are in the pocket of the CEO.

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Development and Reform Research Team University of Bologna 12 Data We created electronic files based on records from the personnel archive of the firm All employees, except for top managers Panel data over 1997-2002 with info on wages, bonuses and arrears Rich set of demographic and human capital variables Financial variables are deflated to 1997 using corresponding CPIs Sample selection: drop part-time employees (keep those who are polnaya stavka and work full week) (13%), drop if missing explanatory variables (0.1%) Sample size is around 3,000 observations per year Dependent variables: Log of average monthly wage Log of total monthly compensation (avg. monthly wage + monthly bonuses)

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Development and Reform Research Team University of Bologna 13 Methodology Estimate augmented Mincerian regressions for wages and total compensation by gender: Controls: tenure (squared + cubed), age (squared + cubed), 6 education categories, 3 family status categories, dummies for children (0 vs. 1 vs. 2 and more children), any outside training, on the job training, internal mobility. Perform different decompositions: For means: Oaxaca-Blinder (1973) and Neumark (1988) /Oaxaca-Ransom (1994) For quantiles: Machado-Mata (2005) For changes over 1997-2002 at the means: Juhn, Murphy and Pierce (1991) For changes over 1997-2002 at quantiles: Machado-Mata (2005) Explanations of the GEG and its dynamics Analysis of gender differences in job assignment and promotions (to be completed)

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Development and Reform Research Team University of Bologna 14 Proportion of females in the firm

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Development and Reform Research Team University of Bologna 15 Occupational distribution (%) Production workers Service staff Engineers/ Technical staff Accounting staff ManagersN 1997 Males69.754.6819.700.115.761,772 Females48.85 5.0637.836.391.871,126 2002 Males69.895.6119.430.114.961,853 Females51.744.4636.045.532.231,121

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Development and Reform Research Team University of Bologna 16 Earnings by gender, 1997 and 2002: All employees Workers

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Development and Reform Research Team University of Bologna 17 Evolution of the GEG inside the firm

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Development and Reform Research Team University of Bologna 18 OB decomposition, all employees

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Development and Reform Research Team University of Bologna 19 GEG at the means At best one third of the gap is explained by differences in productive characteristics GEG decreased between 1997 and 2002 by approx. 20 points GEG for the entire workforce is driven by the earnings differentials for engineers and production workers GEG is small and for the most part insignificant for managers (in line with Lazear and Rosen, 1990) and (in some years) for service staff Workers have by far the highest gaps, little of which is explained by differences in observed characteristics

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Development and Reform Research Team University of Bologna 20 GEG at the quantiles: raw and adjusted gaps

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Development and Reform Research Team University of Bologna 21 GEG at the quantiles: MM (2005) total gap and gap due to coefficients 1997 2002

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Development and Reform Research Team University of Bologna 22 GEG at the quantiles: MM (2005) In general, GEG has roughly an inverted U-shape profile across wage distribution, apart from 2002 There is evidence for an increase of a glass ceiling effect by 2002 The highest quantile in 1997 and the lowest in 2002 exhibit particularly low gender differentials The main portion of the GEG is due to the differences in coefficients

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Development and Reform Research Team University of Bologna 23 Potential explanations of the change in GEG: 1997-2002

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Development and Reform Research Team University of Bologna 24 Change in GEG at the mean: JMP (1991)

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Development and Reform Research Team University of Bologna 25 Change in GEG at the mean: JMP (1991) About 29 percent of the decrease can be explained by changes in observed characteristics and prices Changes in observed characteristics about four times as important as changes in observed prices About 6 points of the reduction of the gap is because women improve their position in the male residual earnings distribution About 8 points are due to a narrowing of this distribution The joint contribution of gender-specific effect has the most weight (contrary to the early years of transition, see Brainerd, 2000)

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Development and Reform Research Team University of Bologna 26 Change in GEG at the quantiles: MM (2005) Raw gap fell more at the bottom than at the top. Is that due to changes in Xs or changes in s? ___________________________________________________ 1 The actual gap is the coefficient on the male dummy in the quantile regressions without covariates.

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Development and Reform Research Team University of Bologna 27 Change in GEG at the quantiles: MM (2005)

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Development and Reform Research Team University of Bologna 28 Change in GEG at the quantiles: Women If the distribution of womens Xs had not changed from 1997, the gap would have decreased at the bottom, but would have stayed almost the same throughout the rest of the distribution (row 6). Thus, womens characteristics were better in 1997 at the bottom, but not in the rest of the distribution. That does not help to explain the larger fall at the bottom. If women in 2002 had the returns to their characteristics as in 1997, the gap would have been even negative at the top (benefiting women over men) and would have risen a lot at the bottom. Changes in s contributed to the large reduction in the gap at the bottom and an increase at the top. Thus, a large increase in the prices of womens characteristics at the bottom (i.e. decrease in discrimination) is an explanation of the larger fall of the GEG at the bottom.

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Development and Reform Research Team University of Bologna 29 Change in GEG at the quantiles: MM (2005)

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Development and Reform Research Team University of Bologna 30 Change in GEG at the quantiles: Men If men in 2002 had characteristics of 1997, the gap would have been slightly larger at the bottom 10th percentile and almost the same in the rest of the distribution. Thus, at the very bottom mens Xs were slightly better in 1997 than in 2002, and worsening in mens Xs contributed to the fall in the gap there (however, to a small extent). The best from the bottom have moved away. If men in 2002 had 1997 s, the gap would have been larger everywhere. Mens s in 1997 were better than in 2002 and decline in rewards for men contributed to reducing the gap throughout the whole distribution. The reduction in s, however, is higher at the top than at the bottom. It is increased rewards of women at the bottom + a slight worsening in mens characteristics

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Development and Reform Research Team University of Bologna 31 What have we learned so far? There exist a GEG inside a Russian firm, which is the largest for production workers and is absent for managers The gap is largerly unexplained by productivity characteristics at the mean and at the quantiles The gap declines from 1997 to 2002, and the glass ceiling effect emerges Potential explanations of the decline: change in prices and composition effect It is not the less-skilled women who separate (Hunt, 2002) The quality of new hirees is slightly worse for both genders, average quality of female employees does not improve over time nor is changing composition of males at lower end driven by hirings 1/3 of the fall of GEG at the mean is explained by changes in observed characteristics and prices.

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Development and Reform Research Team University of Bologna 32 What have we learned so far? The decline of GEG is largely due to a decline in the lowest part of the distribution. The reasons: men with better characteristics leave the bottom of the wage distribution, which also improves relative position of women in residual male wage distribution; decreased rewards for men; mainly: the rewards to characteristics for women improve disproportionately at the bottom of the distribution.

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Development and Reform Research Team University of Bologna 33 Potential explanations of the existence of the GEG

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Development and Reform Research Team University of Bologna 34 Potential reasons behind The GEG declines from 36% to 17% between 1997 and 2002, however is still present Potential reasons: Bonuses Arrears Trade-off between job security and wages Discrimination Segregation .

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Development and Reform Research Team University of Bologna 35 Potential explanations of the GEG: bonuses NO, since the decomposition and regression results for total compensation are very similar to those of the GEG.

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Development and Reform Research Team University of Bologna 36 Potential explanations of the GEG: wage arrears Existed only in 1998 in this firm W.a.s in 1998 are very small and lowest for workers (0.05 months of 1997 wages vs. around 2 months in Russia, see e.g. Lehmann and Wadsworth, 2007); Dohmen, Lehmann and Schaffer (2008): in this firm no gender difference in incidence of w.a.s for all employees; Decomposition results for employees with wages paid in full are very similar. NO

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Development and Reform Research Team University of Bologna 37 Potential explanations of the GEG : trade-off between secure jobs and wages In the firm, the majority of separations are quits (79% among all separations) After having controlled for productivity characteristics and occupations, females have on average 3 p.p. higher probability to quit than males They have also 1 p.p. higher probability to be laid-off NO, but it is not a direct test of self-selection

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Development and Reform Research Team University of Bologna 38 Potential explanations of the GEG : segregation Production workers have the highest GEG that contributes most to the overall gap Production workers have jobs that are linked to levels - 8 for primary workers and 6 for auxiliary workers: so far for 2002 only Controlling for such hierarchical levels is a descriptive exercise because of the endogeneity of these levels Ransom and Oaxaca (2005): But this makes the male/female wage difference that we observe all the more startling: among these workers, although wages were set by a collective bargaining that was, ostensibly, gender neutral, a large wage differential arose because women were placed in jobs different from those assigned to similar men

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Development and Reform Research Team University of Bologna 39 Distribution of workers by wage levels Auxilliary levels:

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Development and Reform Research Team University of Bologna 40 Distribution of workers by wage levels Primary levels:

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Development and Reform Research Team University of Bologna 41 Results for workers including levels at the means: Oaxaca-Blinder decomposition

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Development and Reform Research Team University of Bologna 42 Results for workers at the quantiles with and w/o levels No levels With levels

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Development and Reform Research Team University of Bologna 43 Segregation There exist virtually no GEG within the job levels for production workers Controlling for these levels leads to disappearance of the gap These levels explain the whole wage differential This (descriptive) exercise points out that, in spite of a seemingly gender- neutral wage policy of the top management, large earnings differentials arises because overwhelming numbers of women are placed in low-paid job levels However, gender difference in occupational distribution may reflect promotion discrimination or unequal occupational access. If it does, then it cannot be used to explain the GWG The results with no levels in the regressions can be viewed as an upper bound for the extent of discrimination, and the results with levels - as a lower bound (Arulampalam et al., 2006).

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Development and Reform Research Team University of Bologna 44 Segregation or unequal job assignments ? Probit regression results show that females have 84 p.p. lower probability to be in the primary levels (even those with university education) Fairlie (2003) decomposition shows that only 11% of this job assignment can be explained by the observed characteristics Gender differences in promotion rates and in entry-level jobs (to be completed)

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Development and Reform Research Team University of Bologna 45 What have we found There exists an intra-firm GEG that declines over 1997-2002, which is driven by the GEG for production workers Increased rewards for women at the lower end of the distribution (and outflow of men with better characteristics at the bottom) seem to be a reason behind the decline Bonuses, wage arrears or wages-secure jobs tradeoff do not seem to be reasons behind the existence of the GEG For production workers the gap is almost completely explained when workers levels are included into the regressions Job levels explain about 45-59% of all the variation in wages (R2 from the respective regressions)

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Development and Reform Research Team University of Bologna 46 Conclusions and future research Composition effect and increase in rewards for women at the bottom of the wage distribution (decrease in discrimination?) are the reasons behind the decrease in GEG Consistent with the increasing competition that firm faces as well as with the reduction on childcare facilities in the second half of 1990s The potential explanation of the existence of the GEG seems to be existence of segregation in the internal labor market in Russia However, the lower job assignment of women could only to a small degree be explained by individual productivity characteristics and deserves further explorations Current research agenda: lower entry-level jobs vs. lower promotion opportunities