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Mind the gap

Steven Stillman

Mind the gap

It is well documented that women in New Zealand earn, on average, 10-15 per cent less than men. Similarly, workers in the biggest firms earn around 20 per cent less than workers in small firms, and those in the big cities – particularly Auckland – earn more than workers elsewhere.

But why? Is it because big firms tend to hire more productive workers? Is it because larger firms exploit their market power and share these profits with their workers? Does the “big firm premium” contribute to the gender pay gap because more women tend to work for smaller firms.

Professor Steven Stillman (Economics) says that understanding the causes of these “wage gaps” is critical for evaluating the role of public policy in creating an equal playing field for different workers. However, research to date has been unable to show what role productivity differences might play.

He has won a three-year Marsden grant to explore this further, using data collected by Statistics New Zealand – the Integrated Data Infrastructure – that provide longitudinally-linked information about all workers and firms in New Zealand.

“This data can be used to simultaneously measure wage and productivity differences across groups of workers, allowing us to estimate the proportion of each ‘wage gap’ resulting from differences in worker productivity and evaluate possible explanations for any unexplained wage differences.”

Further, gaining a better understanding of the reasons for regional differences in earnings will be crucial for evaluating whether government should prioritise investment in particular cities or regions, he says.