Differences in Labor Supply to Monopsonistic Firms and the Gender Pay Gap: An Empirical Analysis Using Linked Employer-Employee Data from Germany

This article investigates women's and men's labor supply to the firm within a semistructural approach based on a dynamic model of new monopsony. Using methods of survival analysis and a large linked employer-employee data set for Germany, we find that labor supply elasticities are small (1.9-3.7) and that women's labor supply to the firm is less elastic than men's (which is the reverse of gender differences in labor supply usually found at the level of the market). Our results imply that at least one-third of the gender pay gap might be wage discrimination by profit-maximizing monopsonistic employers. Empirical studies usually find that women's labor supply is more elastic than men's at the level of the market, but some researchers argue informally that this relationship reverses at the level of the individual firm. (Boal and Ransom 1997, 99)