Slicing and dicing the gender/racial earnings differentials

Purpose - This paper aims to explore an extensive set of determinants of earnings and to offer recent empirical evidence of their effects on gender and racial earnings gaps. Design/methodology/approach - Most previous studies looked at gender and racial comparisons independently of each other. This study extends previous studies by considering the interaction between gender and race. Using administrative data from a large Canadian firm, this paper explores the determinants of earnings based on a standard human capital model, comparing the earnings of white females, minority males and minority females with their white male counterparts. Both the dummy variable approach and a decomposition analysis are employed. Findings - The results show that ranking in the organizational hierarchy accounts for most of the differences in gender and racial earnings, and ranking, together with human capital and job characteristics variables, explains over 90 percent of the earnings gap. Research limitations/implications - The analyses in the paper are based on data from a Canadian organization with nation-wide operations. The findings may not apply to small or medium sized enterprises in Canada and in other non-Western economies. Practical implications - To eliminate the earnings gap, equal pay programs need to be supplemented by effective employers' programs and policies targeted at equal advancement opportunity. Originality/value - The paper uses firm-level data, which provides natural controls for variations across firms and allows for more in-depth analysis of the impact of various factors on earnings differentials.