Understanding what drives the gender wage gap remains a central question in the academic and policy debate. Despite some convergence, women continue to earn less than men. Early explanations, grounded in frameworks based on competitive labour markets, focused on differences in human capital (productivity) or career choices (compensating differentials for non-wage working conditions). More recent research recognises that labour markets may be imperfect and that firms themselves contribute to wage disparities through the way they set wages. An influential paper by Card et al. (2016) showed that a significant share of the gender wage gap in Portugal arises from differences in firm-specific wage premiums received by men and women, highlighting the role of employers in shaping gender pay gaps.

In a new paper, we provide comprehensive cross-country evidence on the role of firms in gender wage gaps using a harmonised research design (Palladino et al., 2025). The analysis relies on comprehensive administrative employer–employee data from the US (Washington State) and ten European countries over roughly 2010–2019. The data provide high-quality information on earnings and hours worked and hence allow taking account of gender differences in working time. The harmonised research design allows us to make consistent comparisons across countries of the importance of firms in shaping the gender wage gap and the different mechanisms contributing to it. Moreover, by integrating harmonisation into our research design from the outset, our paper contributes to efforts to improve reproducibility and replicability in economics.

Firms matter

We find that firms matter in all countries considered, accounting for 10-30% of the gender wage gap. In the US, Hungary, and Germany, gender gaps in firms’ pay premiums explain at least 30% of the overall gender wage gap, while in Denmark, Sweden, and Finland, they explain about 15%.  Interestingly, countries with large gender wage premium gaps also tend to have large gender wage gaps. This suggests that firm-level factors help explain cross-country differences in the gender wage gap. These countries are also those where firms matter more for overall wage setting; that is, the greater the firm-level pay inequality, the larger the gender gap in firm-specific wage premiums.

The gender gap in firm pay premiums to some extent reflects the fact women are paid less than similarly skilled male colleagues within the same firm (‘pay-setting channel’). This points to differences in pay for work of equal value which arise because of differences in the bargaining position of men and women, or employer discrimination. However, in the majority of countries, the gender gap in firm-specific wage premiums mainly reflects the fact that women are more likely to work at firms that pay less to all employees, irrespective of their skills (‘sorting channel’). These patterns persist even after accounting for differences in occupational sorting. This indicates that employers play an important role in generating gender differences in wages, above and beyond occupational choice.

Figure 1 Firms matter: Relationship between the gender wage and the wage premium gap

Notes: The figure shows the gender wage gap (the difference in average log hourly wages between males and females) in log points on the y-axis. The x-axis displays the gender wage premium gap, which is the sum of the sorting and pay-setting components. The diagonal lines represent scenarios in which firm wage premiums account for 10% (top line) and 40% (bottom line) of the total gender wage gap.
Source: Palladino et al. (2025)

We document several other consistent patterns across countries. First, career paths consistently diverge over the life course. While men move to higher-paying firms as they advance in their career, women tend to stay behind. This is likely to reflect the unequal sharing of childcare responsibilities. We compare the gender differences in firm-specific wage premiums for workers before their childbearing years, in their 20s, and for workers beyond the age of fertility. For almost all countries considered, the contribution of firms grows meaningfully with age. Second, part-time work matters. Women not only work part-time more often, but they also are more likely to work at firms where part-time work is more common. And such firms tend to pay lower wages. In other words, women sort into low-wage firms in return for more flexibility in working time. This provides an example of how workplace amenities contribute to the gender wage gap. Third, in high-productivity firms gender gaps are larger. In such firms, rents are larger and the implications of unequal rent-sharing between men and women are more important and contribute meaningfully to the gender difference in firm-specific wage premiums. On average across countries, women receive about 90% of the rents that men receive from firm surplus gains.

Policy implications

The importance of firms in shaping gender wage gaps suggests that there is a case for complementing family policies (e.g. paternity leave) with policies focused on firms (e.g. pay transparency, strengthened unions) (OECD 2021, Cullen 2024). Family policies can promote a more equal sharing of family responsibilities by fostering more fathers to use paternity leave and a more equal uptake of parental leave. Public childcare provision can also reduce the constraints that unequal family responsibilities impose on women. We document that in countries with higher public investment in early education and childcare, the sorting channel is muted. Pay transparency policies can provide a useful complement equal-pay and anti-discrimination laws by promoting awareness of systematic pay gaps within firms and stimulating debate about their causes.  Unions might also play a role in reducing the gender pay gap at each employer, as we document that collective bargaining coverage is associated with a muted contribution from pay-setting. Policies that promote competition in product and labour markets also have a role to play as they limit the scope for differential wage-setting practices between men and women within and between firms by reducing rents. 

Authors’ note: This column was written by Marco G. Palladino, Antoine Bertheau, Alexander Hijzen, Astrid Kunze, Cesar Barreto, Dogan Gülümser, Marta Lachowska, Anne Sophie Lassen, Salvatore Lattanzio, Benjamin Lochner, Stefano Lombardi, Jordy Meekes, Balázs Muraközy, and Oskar Nordström Skans. The column reflects the views of the authors and not those of the institutions to which they belong or their members (Bank of France, Bank of Italy, Federal Reserve Bank of Chicago, the Federal Reserve System, OECD).

References

Card, D, A R Cardoso and P Kline (2016), “Bargaining, Sorting, and the Gender Wage Gap: Quantifying the Impact of Firms on the Relative Pay of Women”, The Quarterly Journal of Economics 131(2): 633–686.

Cullen, Z (2024), “Is Pay Transparency Good?”, Journal of Economic Perspectives 38(1): 153–80.

Palladino, M G, A Bertheau, A Hijzen, A Kunze, C Barreto, D Gülümser, M Lachowska, A S Lassen, S Lattanzio, B Lochner, S Lombardi, J Meekes, B Muraközy and O Nordström (2025), “Firms and the Gender Wage Gap: A Comparison of Eleven Countries”, Federal Reserve Bank of Chicago Working Paper No. 2025-24.

OECD (2021), Pay Transparency Tools to Close the Gender Wage Gap, Gender Equality at Work, OECD Publishing.