Gender Pay Gap Across Cultures

Kristina Minnick is Stanton Professor of Finance at Bentley University. This post is based on a recent paper by Professor. Minnick; Natasha Burns, Professor of Finance at the University of Texas at San Antonio; Jeffry Netter, Josiah Meigs Professor of Finance at the University of Georgia Terry College of Business; and Laura T. Starks, Professor of Finance at the University of Texas at Austin McCombs School of Business.

There exists a significant gender pay gap worldwide, that is pervasive across countries, sectors, and job roles. According to a 2021 report by the World Economic Forum, women earn 37% less than men in similar positions. Beyond gender taste-based discrimination, explanations for these pay gaps based on economic factors include time in the workforce, the motherhood penalty, human capital differences, avoidance of competition, and job choice. We contribute to this accumulated research by demonstrating that a society’s cultural norms can explain why women are paid less than men. We provide empirical evidence that cultural factors, which are embedded in societies long before the compensation decisions, significantly improve our ability to explain the pay gap (from 44% with traditional determinants of executive compensation to 95% when also including the cultural norms).

Using a cross-country sample of corporate executives, we exploit differences in cultural beliefs and attitudes to examine their relations with gender wage differentials. The corporate executive labor market is one in which the pool of people with appropriate talent and skill is limited relative to the demand, creating significant competition.* Our sample consists of top executives across 31 countries over the 2004-2016 period. Our measures of culture derive from the World Values Survey, a widely used survey of individual attitudes conducted in many countries by teams of social scientists. We focus on three primary culture categories. The first category captures a society’s beliefs and attitudes regarding women’s education and work, that is, whether women should receive equal education to men, and whether positive views toward women’s roles in the workplace exist. The second category includes views such as the degree to which religious beliefs are dogmatic, the acceptance of violence toward women as well as acceptance of intolerance and corruption. The third category of cultural variables relate more toward markets and executive compensation in general, including societal views on hard work and success, the role of the individual, and the level of trust.

We find that the gender pay gap, even among top executives, is greater in societies with more acceptance of corruption, intolerance, in which religious beliefs are more dogmatic, and where there is greater acceptance of violence toward women. Conversely, the pay gap is smaller in societies with greater acceptance of females’ education and workforce participation, as well as greater value given to individualism and hard work. Moreover, our results show societal views on gendered violence to be the strongest predictor of the pay gap among top executives which is particularly noteworthy given the low likelihood there would be an endogeneity issue with this variable. (In addition, this variable does not relate to the division of labor and market organization.) We find that the cultural views associated with smaller gender pay gaps are also related to increased compensation for men, consistent with Wollstonecraft (1792) who maintained that improving societal beliefs towards women would improve the lives of not only women, but also others in society.

Conducting a Blinder-Oaxaca decomposition analysis we determine that when we add the cultural norm variables to a model with previous explanatory variables such as executive role, tenure, and firm characteristics, the model’s explanatory power for the executive gender compensation gap increases from 44% to 95%. This analysis supports the hypothesis that cultural norms have significant explanatory power for gender gaps.

To examine these relations in more depth, for a subsample of developed countries, we consider how the introduction of paternity leave laws and board diversity laws can generate variation in the composition of the workforce. For example, paternity leave laws provide incentives for men to help with child-rearing, and may affect or reflect changes in culture, including reducing the stigma of family leave. Board diversity laws may affect the incentives of both women and men to aim for a board position or men to mentor them, thereby increasing women’s workforce participation and skill. We find that each is associated with a reduction in the gender pay gap among top executives.

Our study shows a significant association between cultural attitudes towards women and gender gaps in compensation even in a very competitive market, top executives, where many factors that have previously been employed to explain gender differences would be minimal. Our results are consistent with the accounts of women that gender-related attitudes matter in the workforce, but that are difficult to assess at an individual level as few will admit to discriminatory preferences in the workforce. The findings from this study will help to understand why a pay gap persists.

The complete paper is available for download here.

*Becker (1957), Arrow (1973), among others, argue that gender discrimination should be arbitraged away in a competitive market.

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