Firms and ethnic wage differences

We examine the contribution to ethnic earnings gaps of differences in the firms where different ethnic groups work.

We use linked employer-employee data to estimate worker and firm pay premiums (fixed effects), adapting existing methods to deal with multiple-response ethnicities and weighting.

The sorting of workers across firms contributes 10-26 percent of within-ethnicity gender gaps but affects average earnings for men or women within ethnic groups by less than 1 percent, in the face of average ethnic earnings gaps of up to 14 percent. 

We conclude that within-firm earnings differences are the dominant source of ethnic earnings gaps.

Citation

David C Maré and Richard Fabling. "Firms and ethnic wage differences.” Motu Working Paper 25-07. Motu Economic and Public Policy Research. Wellington, New Zealand