Competition and the Gender Wage Gap: New Evidence from Linked Employer-Employee Data in Hungary, 1986-2003

The overall gender wage gap fell from .31 to .15 between 1986 and 2003 following the transition to a free market in Hungary. During the same time period, firms faced increased competition from both new domestic and foreign firms due to the rapid liberalization measures implemented by the government. Becker’s (1957) model of employer taste discrimination implies that employers that discriminate against women may be forced out of the market by competition in the long run, leading to a fall in the gender wage gap. I test this implication using data from the Hungarian Wage and Earnings Survey covering 1986-2003. I estimate the effect of variation in various measures of product market competition, including trade variables, on the within-firm endowment-adjusted gender wage gap, making use of the fact that I am able to follow firms over time. The estimates show a significant negative relationship between product market competition and the within-firm gender wage gap. I am grateful to Shelly Lundberg, John Earle, Lan Shi, Judith Thornton, Richard Startz, Álmos Telegdy, and Stepan Jurajda for the guidance they provided. The research in this paper was supported by the Marie Curie fellowship at the Economics Department of the Central European University in Budapest and the Center for Economic Research and Graduate Education in Prague. The harmonized data was provided by the Economics Institute of the Hungarian Academy of Sciences, and cleaned further at the Labor Project of the Central European University.