The gender wage gap has narrowed significantly in industrialized nations since World War II. Yet, in recent decades, progress has slowed as women remain underrepresented in high-paying firms and tend to earn less than their male counterparts even when working in the same roles. A new IZA discussion paper by István Boza and Balázs Reizer highlights a specific driver of this persistent disparity: flexible wage components like bonuses and overtime payments.
Flexible wages widen the gap
Using extensive Hungarian administrative data linked with wage surveys spanning 2003 to 2017, the study reveals that the gender wage gap is significantly larger in firms where bonuses and overtime payments are prevalent. While firms without these flexible components show negligible gender wage differences, those that rely heavily on them exhibit a gender wage gap exceeding 11% in firm-specific wage premiums—the additional pay provided by firms beyond base wages.
A quarter of the gap stems from flexible wages
Performance and overtime payments contribute 60% to the gender gap in firm-specific wage premiums and 25% to the overall gender wage gap of 23.4% in Hungary’s private sector. This is partly due to sorting: women are less likely to work at high-paying firms offering these wage components. Even within the same firm, women receive a smaller share of firm premiums when flexible wages are involved, suggesting disparities in negotiation outcomes or allocation practices.
Implications for policy and equality
The findings underscore the disproportionate impact of flexible wage components on the gender wage gap. Addressing this inequality requires targeted interventions, such as revisiting the structure and regulation of performance and overtime payments. While these components may boost productivity, their uneven distribution exacerbates wage disparities, particularly for women. This research provides valuable insights for policymakers aiming to enhance fairness and equality in labor markets.