Executive summary
This review provides a detailed analysis of the gender wage gap in Germany, with a specific focus on the role of firms, and puts forward a comprehensive policy package to tackle the gender wage gap. The review uses administrative data that link employees and their employers which allow analysing the gap in pay between men and women with equivalent skills within and between firms at each age. The within-firm component captures differences in pay between men and women within firms related to differences in tasks and responsibilities, or differences in pay for work of equal value (related to e.g. bargaining, discrimination). The between-firm component captures the role of differences in firm-specific wage premia, i.e. differences in average pay between firms unrelated to workforce composition and due to the sorting of women into low-wage firms. To tackle persistent gender wage gaps a comprehensive policy package is required that combines education and family policies with policies directed at firms to promote better working conditions for all workers, including pay transparency requirements.
About three-quarters of the gender wage gap between similarly skilled men and women (almost 20% on average during the period 2002-18) reflects differences in pay within firms rather than between firms. Wage gaps within firms are mainly due to men and women having different tasks and responsibilities, rather than differences in pay for work of equal value. Given this, the key priority for policy must be to promote access for women to better jobs within firms. The remaining one-quarter of the gender wage gap is due to the fact that women are disproportionately employed in low-wage firms and low-wage industries. Pay differences between firms for similarly skilled workers are particularly large in Germany compared with nearby countries such as Denmark, France, the Netherlands and Sweden, and have become more pronounced since the 1990s. This has been attributed to the erosion of collective bargaining and a greater emphasis on decentralised wage-setting.
Between and within firms, the gender wage gap increases sharply around the age of childbirth in Germany (ages 30-40), much more so than in the neighbouring countries (except for the Netherlands with its high incidence of part-time employment). Men increasingly sort into high-wage jobs as they advance in their careers, while women, particularly those with young children, tend to stay behind as they are more likely to take leave or experience career interruptions and are more likely to return to part-time work, which offers fewer opportunities for career progression and is associated with lower wages. Indeed, the growth in the gender wage gap also coincides with a similarly sharp increase in the gender gap in working time as many women move to part-time work after returning from maternity leave. This is particularly common among women with low to medium levels of skills.
Since the mid-2000s, German policy has moved towards supporting a more gender – balanced reconciliation of work and family life, and the German policy package to address gender wage gaps will need to build on existing public supports. Public paid parental leave policies should continue to promote equal use by fathers and mothers, including through stronger financial incentives for use of leave by both parents. Public investment in the capacity (also in hours) and quality of Early Childhood Education and Care (ECEC) and out-of-school hours (OSH) services needs to be sustained and expanded in areas where such support is most needed. Furthermore, it is important that the tax/benefit system ensures that both partners in a couple family have equally strong financial incentives to work: changes to the joint taxation system that reduce marginal tax rates for secondary earners – mainly women, and incentivise them to supply extra hours to the market, would be welcome.
At the same time, labour market policies that promote women’s access to better quality jobs need to be strengthened to address the large gender wage gap between similarly skilled men and women within firms. Better data and pay transparency measures can be used to increase awareness of existing hiring and career development outcomes within firms and start the debate and, where needed, re-assessment of company practices. Germany should adopt a more comprehensive set of pay transparency tools to keep firms, employees and policy makers informed about developments of the gender wage gaps in workplaces. In fact, the introduction of detailed equal pay audits, on a pilot basis, could be considered as the detailed information they generate potentially offers avenues for follow-up action that better fit the company than simpler pay reporting measures.
The introduction of a combined package of job-classification systems and pay transparency measures would provide employees with benchmarks to which they can compare their own pay packages. This would contribute to reducing within-firm gender wage gaps, but also increase awareness of job-opportunities elsewhere and enhance mobility across firms.
There are many other aspects that affect gender pay gaps. Inter alia, education and educational choices by boys and girls and men and women matter, social norms and their dynamics matter, workplace cultures and practices matter. Changing educational choices, societal norms and workplace behaviour also takes time. However, that should not deter policy makers from trying to shape a policy environment that fosters equal pay for work of equal value for workers across the life course.