Owner Culture and Pay Inequality within Firms

80 Pages Posted: 8 Apr 2022 Last revised: 25 May 2022

See all articles by Iris Wang

Iris Wang

University of British Columbia (UBC) - Sauder School of Business

Jan Bena

University of British Columbia - Sauder School of Business

Guangli Lu

Chinese University of Hong Kong, Shenzhen

Date Written: March 31, 2022

Abstract

We study the role of national culture in explaining within-firm pay inequality in closely-held firms owned by immigrants using a unique employee-employer matched dataset linked with firm ownership and immigrant records in Canada over the 2001 – 2017 period. We find that culture that immigrant owners carry from their home countries is an economically significant determinant of pay inequality within their firms. We show that Hofstede’s individualism is a key cultural dimension affecting within-firm pay inequality: firms owned by individuals from more individualistic countries have larger pay inequality. We show that the impact of culture on within-firm pay inequality is causal. In a difference-in-differences setting using firms that undergo ownership changes, we find a significant increase in within-firm pay inequality after the firm was taken over by immigrant owners from a country with higher within-firm pay inequality or from a more individualistic country. We find similar results among employee stayers; among employee stayers in firms within a labor-intensive industry where production technology is comparable; when the owner changes were caused by deaths of prior owners. Overall, our findings suggest that informal institutions such as national culture are important determinants of income inequality.

Keywords: national culture, pay inequality, individualism, immigration

JEL Classification: J31, J15, Z10

Suggested Citation

Wang, Iris and Bena, Jan and Lu, Guangli, Owner Culture and Pay Inequality within Firms (March 31, 2022). Available at SSRN: https://ssrn.com/abstract=4071250 or http://dx.doi.org/10.2139/ssrn.4071250

Iris Wang (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

HOME PAGE: http://iriswang.ca

Jan Bena

University of British Columbia - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
+1 604 822 8490 (Phone)

HOME PAGE: http://www.janbena.com

Guangli Lu

Chinese University of Hong Kong, Shenzhen ( email )

Teaching Building A
2001 Longxiang Road
Shenzhen, Guangdong 518172
China
18820958236 (Phone)
518172 (Fax)

HOME PAGE: http://sites.google.com/view/guanglilu

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