The Lifecycle Wage Growth of Men and Women: Explaining Gender Differences in Wage Trajectories

Why do women's wages grow more slowly than men's? Theory indicates that wages grow both as workers progress up an internal "career ladder," and as they switch firms and move up the "job ladder" to higher-paying firms. In this paper, we use employer-employee linked data from Sweden to non-parametrically decompose cumulative wage growth of men and women at each age into wage gains associated with firm changes, and within-firm growth. We then decompose within-firm growth into (1) large wage increases relative to one's co-workers, or promotions, and (2) interim (non-promotion) growth. We find that Swedish women switch firms at almost identical rates as men over the lifecycle, and upgrade to higher-paying firms at only slightly lower rates as men. However, they have substantially lower promotion rates at all ages, even accounting for firm, major, and occupation. Though relatively rare, promotions are the largest driver of wage growth by 45 for both men and women. Gender differences in promotion-related growth account for around 73 to 83% of the differences in lifecycle wage growth of college-educated men and women from ages 25 to 45. Differences in wage growth associated with firm changes account for 28%, while interim, non-promotion growth is slightly higher for women. Gender differences in sorting across firms with steeper vs. flatter wage structures explain only about 10% of differences in promotion probability. Lastly, we study hours worked and the evolution of the promotion gap with time to first birth. We use our findings to explain why childbirth penalties for women are so large, immediate and persistent; why gender wage differentials vary across professions; and what contributes to gender differences in firm wage premiums estimated using AKM.