Owner Culture and Pay Inequality within Firms

78 Pages Posted: 8 Apr 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 differences in within-firm pay inequality among closely-held firms owned by immigrants in Canada. Using a unique matched employer-employee-owner tax filing data, we find that the culture that immigrant owners bring from their home countries has an economically significant influence on the pay inequality within their firms. Relative to firms owned by immigrants from the United States, firms owned by immigrants from most other countries have significantly smaller pay inequality. Consistent with the argument that individualistic owners emphasize monetary incentives, individual achievement, and individual accountability, while focusing less on group harmony and equal pay, we show that that Hofstede’s individualism is a key driver of within-firm pay inequality. We find that within-firm pay inequality is higher if a firm’s owner immigrated from a more individualistic country. We further conduct a series of analyses showing that the impact of culture on within-firm pay inequality is likely to be causal. In the difference-in-differences setting, we find an increase in within-firm pay inequality after the firm was taken over by immigrant owners from a more individualistic country. Overall, our findings suggest that informal institutions such as national culture may be 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

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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