The influence of work organizations on the generation and change of wage inequality: How firms shape the gender wage gap and influence wage and bonus inequality in Germany between 1995 and 2010

Abstract

One of the most important resources determining chances in life is the amount of income an individual has at its disposal. For most people in contemporary societies wages make up the majority of their overall income and are therefore a key dimension of social inequality. This phenomenon attracted scholarly interest before the recent debates about widening wage inequality in many industrialized societies and represents a core topic in sociology and economics. Wages are the result of employment relationships and, as such, are determined by characteristics of the employee, but also by characteristics of the employer and the idiosyncratic match between them. This thesis aims to add to a growing strand in the literature that focuses on the latter two influences. This does not imply that individual attributes do not matter. It rather means that characteristics of the firm and the specific combination of these two factors need more attention. Associated with this switch in perspective is the emphasis of work organizations as social arenas in which (collective) actors struggle over the available organizational resources. Unlike human capital theory (and most other economic theories) which conceptualize wage levels as the result of valuation processes of individual skills and other productivity-relevant attributes on labor markets, relational inequality theory (RIT) treats work organizations as the actual place where wage inequality is generated. The thesis makes use of this comparably new theory in combination with concepts that emerged in the “new structuralism” literature to formulate a coherent theoretical framework. Overall, the thesis tries to understand and empirically explore the role that firms play for the processes of generation and change of wage inequality. I make use of four samples of the German Structure of Earnings Survey (1995, 2001, 2006, and 2010), a large administrative dataset whose distinctive feature is the possibility to link employee with employer information in order to receive a linked employer-employee dataset (LEED). The first study addresses the generation of one type of wage inequality, namely the gender wage gap (GWG). The article demonstrates that firm-specific opportunity structures in form of status relations influence the GWG in firms. More specifically, relative wages of women in the firm increase with the share of female managers and advantages in educational certificates compared to men. The other two studies, which are written together with Martin Groß, focus on the change in wage inequality between 1995 and 2010 in Germany. Study 2 shows that three firm characteristics, namely average human capital, stability, and coverage by collective agreement, influence individual wages positively – net off individual attributes. However, there is much variation in effects along the wage distribution. We also detect variation in effects and over time, which we interpret as the consequence of globalization and financialization, two processes that change the environment of firms and hence their pay and selection regimes. Using a series of RIF-decompositions we show that these changes in effects as well as changes in the composition contribute to the change in wage inequality. Finally, Study 3 complements this analysis with a look on bonus payments. We show that bonus inequality has been rising since 1995 and that this rise fuels the rise in overall wage inequality. We further highlight differences between firms and conclude that less stable firms and covered firms reduce bonus payments especially for low wage groups. Overall, the findings emphasize the important role of firms for the generation and change of wage inequality. It is not only individual characteristics that determine wages, but also the firm one finds employment as well as the opportunity structures within it. Additionally, firms react and adapt to changes in the environment and change their pay and selection regimes accordingly. Such adaption strategies on the firm level influence wage inequality and have contributed to the rise in wage inequality in Germany between 1995 and 2010. These findings also have policy implications: Increasing the share of female managers should lead to a corresponding reduction of the GWG; re-strengthening of the collective bargaining system and unions should also lead to a decrease in wage inequality as should an expansion of firm internal labor markets.