Flexible Wages, Bargaining, and the Gender Gap

Does flexible pay increase the gender wage gap? To answer this question, we analyze the wages of public school teachers in Wisconsin, where a 2011 reform allowed school districts to set teachers’ pay more flexibly and engage in individual negotiations. Using quasi-exogenous variation in the timing of the introduction of flexible pay, driven by the expiration of preexisting collective-bargaining agreements, we show that flexible pay lowered the salaries of women compared with men with the same credentials. This gap is larger for younger teachers and smaller for teachers working under a female principal or superintendent. Survey evidence suggests that the gap is partly driven by women engaging less frequently in negotiations over pay, especially when the counterpart is a man. The gap is unlikely to be driven by observable gender differences in job mobility or teacher ability, although the threat of moving and a high demand for male teachers could exacerbate it. Our results suggest that pay discretion and wage bargaining are important determinants of the gender wage gap and that institutions, such as unions, might help narrow this gap.