Owner Culture and Pay Inequality within Firms

Abstract

Using a comprehensive dataset of employee-employer-firm owner-immigration records in 2001-2017, we examine the impact of immigrant owners' national culture on within-firm pay inequality. Firms owned by immigrants from more individualistic countries have higher pay dispersion among employees. Individualism alone explains more than half of the variation in within-firm pay inequality across owners' countries in our sample. This result is robust across various empirical methods, including difference-in-differences analysis of ownership changes. Owners' individualism is associated with their employee compensation structures: more frequent and larger performance pay components—especially for highly educated employees, quicker promotions to high-paying positions, and less pay compression. These findings highlight the prominent role of culture in shaping pay practices and elucidate broader determinants of income inequality.

Keywords: Inequality, Individualism, Immigrant-owned firms JEL Classification: J31, J15, Z10

JEL Classification: J31, J15, Z10