The Sustainability Wage Gap

Abstract

Using administrative employer-employee matched data, we provide evidence that workers earn substantially lower wages in more sustainable firms. Examining both cross-sectional and time-series heterogeneity, we find that the wage gap is larger for high-skilled workers and increasing over time. We hypothesize that this Sustainability Wage Gap arises because workers with preferences for sustainability accept lower wages to work in more environmentally sustainable firms. Using a battery of additional tests, we argue that our results are difficult to reconcile with many alternative interpretations suggested in prior research such as a better work-life balance or better career opportunities.

Keywords: Wage differentials; Allocation of talent; Human capital; Sustainability; ESG; CSR; Preferences; Work-life balance; Career opportunities

JEL Classification: J24, J31, Q56, G32