The Sustainability Wage Gap

92 Pages Posted: 11 Sep 2020 Last revised: 19 Apr 2022

See all articles by Philipp Krueger

Philipp Krueger

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; European Corporate Governance Institute (ECGI); University of Geneva - Geneva School of Economics and Management

Daniel Metzger

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); European Corporate Governance Institute (ECGI); London School of Economics & Political Science (LSE) - Financial Markets Group

Jiaxin Wu

Stockholm School of Economics - Department of Finance

Date Written: December 20, 2021

Abstract

Using detailed administrative employer-employee matched data and a novel measure that quantifies the environmental sustainability of different economic activities of Swedish private sector firms, we provide evidence that workers earn about 9 percent lower wages in firms that operate in more sustainable sectors. We hypothesize that this Sustainability Wage Gap arises because workers, especially those with higher skills and from younger cohorts, value environmental sustainability and accept lower wages to work in more environmentally sustainable firms and sectors. Accordingly, we find that the Sustainability Wage Gap is larger for high-skilled workers and increasing over time. In further analysis, we document that more sustainable firms are also better able to recruit and retain high-skilled workers. We argue that our results are difficult to reconcile with many alternative interpretations suggested in prior research and that the Sustainability Wage Gap carries important implications for firms’ human resource strategies and firm value.

Keywords: Wage differentials; Allocation of talent; Human capital; Sustainability; ESG; CSR

JEL Classification: J24, J31, Q56, G32

Suggested Citation

Krueger, Philipp and Metzger, Daniel and Wu, Jiaxin, The Sustainability Wage Gap (December 20, 2021). Swedish House of Finance Research Paper No. 20-14, European Corporate Governance Institute – Finance Working Paper 718/2020, Swiss Finance Institute Research Paper No. 21-17, Available at SSRN: https://ssrn.com/abstract=3672492 or http://dx.doi.org/10.2139/ssrn.3672492

Philipp Krueger

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

Swiss Finance Institute ( email )

Switzerland

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

University of Geneva - Geneva School of Economics and Management ( email )

Uni Mail
Bd du Pont-d'Arve 40
Geneva, 1211
Switzerland

Daniel Metzger (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Jiaxin Wu

Stockholm School of Economics - Department of Finance ( email )

SE-113 83 Stockholm
Sweden

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