infonet-economy

Although discrimination is the most prominent explanation for the gender pay gap, studies providing conclusive evidence are scarce. This paper examines whether discrimination is less severe under performance pay than under time-based pay. To identify an external and measurable source of discrimination we exploit the variation of social norms regarding equal pay for equal work across different regions. We hypothesize the influence of social norms to be smaller in performance than time-based pay because performance pay is more closely tied to workers' productivity and thus employers have less scope for discrimination. Our empirical results show a strong and significant effect of social norms for the time-based component of pay, whereas we cannot identify such an effect for the performance-based component of pay. Therefore, our paper provides a direct proof that discrimination is less severe under performance than time-based pay.