Firms and ethnic wage differences

David Maré () and Richard Fabling ()
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David Maré: Motu Economic and Public Policy Research
Richard Fabling: Motu Economic and Public Policy Research

No 25_07, Working Papers from Motu Economic and Public Policy Research

Abstract: 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.

Keywords: Earnings; ethnicity; sorting; two-way fixed effects; linked employer employee data (search for similar items in EconPapers)
JEL-codes: J15 J30 J42 J71 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2025-08
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