The role of informal wage negotiations in explaining the gender wage gap

Abstract

It is well known in the gender wage gap literature that wage differentials between men and women can be explained by a range of factors including differences in productivity, occupational segregation, and wage discrimination. In this paper we use the Fair Work Commission’s 2014 Australian Workplace Relation study (AWRS) linked Employer- Employee data set to estimate the contribution that individual level negotiation of wage/salary between the employee and employer makes to the gender wage gap. Preliminary analysis of the 2014 AWRS reveals that men are more likely to attempt to gain a better wage/salary through negotiation with their manager and are more likely to be successful if they attempt to negotiate than are women. The paper uses regression based Blinder-Oaxaca (BO) decomposition we measure (both in terms of sign and magnitude) how much each of the variables capturing how bargaining about wage/salary contributes (both in dollar and percentage terms) towards the overall gender wage gap. Our results indicate that once we control for bargaining the gender wage gap is significantly reduced. In other words gender wage gap is found to be much less among those who bargain relative to those who don’t.