The Sustainability Wage Gap

102 Pages Posted: 11 Sep 2020 Last revised: 4 Jan 2021

See all articles by Philipp Krueger

Philipp Krueger

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

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 17, 2020

Abstract

We document a new channel through which a firm’s sustainability policies can contribute positively to its bottom line, by reducing labor costs and by enabling firms to recruit and retain workers that are highly skilled. Using detailed administrative employer-employee matched data from Sweden and a novel measure that quantifies the environmental sustainability of different economic activities, we document that workers earn about 10% lower wages in firms that operate in more sustainable sectors. We refer to this empirical regularity as the Sustainability Wage Gap. Exploiting heterogeneities in workers’ preferences for sustainable jobs, we show that the wage gap is larger for high-skilled workers, especially those with high non-cognitive skills, and increasing over time. We argue that our results are difficult to reconcile with many alternative interpretations suggested in prior research.

Keywords: Sustainable Finance, ESG, CSR, Sustainability, Allocation of Talent, Millennials, Non-monetary Preferences, Wages

JEL Classification: G11, G38, J24, J28, J31

Suggested Citation

Krueger, Philipp and Metzger, Daniel and Wu, Jiaxin, The Sustainability Wage Gap (December 17, 2020). Swedish House of Finance Research Paper No. 20-14, European Corporate Governance Institute – Finance Working Paper 718/2020, 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

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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