Philipp Krueger | Daniel Metzger | Jiaxin Wu

The Sustainability Wage Gap

Jul 15, 2025

Key Takeaways

  • Research Question: Do workers accept lower wages to work in firms and sectors with stronger sustainability performance?
  • Data & Method: The authors use matched employer–employee data from Sweden linked to firm-level ESG indicators. They estimate wage regressions with fixed effects and analyze job switchers to identify the wage impact of moving to more sustainable employers.
  • Findings: Workers in sustainable firms and sectors earn lower wages, especially those with high cognitive skills or in white-collar roles.
  • The wage gap reflects workers’ willingness to trade monetary compensation for non-pecuniary benefits of ESG alignment.
  • The gap has widened over time, particularly among younger and highly skilled workers.
  • Job switchers who move from less to more sustainable firms experience an average wage decline of 5.6%.
  • Implications: Sustainability can function as a non-monetary job attribute, allowing ESG-oriented firms to attract skilled labor at lower cost.

Source: Krueger, P., Metzger, D., & Wu, J. (2024). The sustainability wage gap. SSRN Working Paper

Background and Research Question

As environmental, social, and governance (ESG) factors become increasingly central to corporate strategy, understanding the relationship between sustainability and labor market outcomes has become crucial. While the literature has focused extensively on how sustainability affects firm performance, the effects on wages and worker preferences remain underexplored. This study seeks to fill this gap by examining whether workers in more sustainable firms accept lower wages than those employed in less sustainable organizations.

 

This paper introduces the concept of a “Sustainability Wage Gap” that suggests workers may be willing to trade off part of their wage for the opportunity to work in firms that align with their sustainability values. This research explores whether such a gap exists across different sectors and how it varies by skill level, firm sustainability, and worker preferences.

Data and Methodology

The analysis leverages a rich dataset from Sweden, covering a broad spectrum of private-sector firms and their employees. The dataset includes detailed information on wages, occupations, worker demographics, educational attainment, and job tenure, matched with firm-level sustainability data derived from several sources.

 

Firm sustainability is measured through multiple indicators, including environmental GHG emissions, ESG scores from MSCI, sector-level sustainability metrics, and news-based assessments of ESG events. Worker preferences for sustainability are assessed using survey data, whereas wage outcomes are analyzed through Mincerian wage regressions and fixed-effects models to account for unobservable individual and firm characteristics.

Findings and Discussion

The study’s findings reveal a substantial wage gap in favor of less sustainable firms. On average, workers in firms operating in sectors with higher sustainability credentials earn about 8.7% less than firms operating in other sectors. This gap is more pronounced for certain occupations, such as HR professionals or legal experts.

The wage gap is also more significant for highly skilled workers. For instance, employees with higher cognitive and non-cognitive skills are more likely to prioritize working in firms with strong sustainability practices, despite the lower wages. This finding suggests sustainability is a highly valued non-pecuniary benefit, especially for highly skilled workers.

A key insight is that the wage gap is not static. Over time, the gap has been widening, particularly among skilled workers. As younger generations increasingly prioritize sustainability in their career choices, the demand for jobs in sustainable firms is rising, but at the cost of accepting lower wages. This trend is especially strong among highly skilled workers, who are more likely to value the intrinsic rewards of working for firms with strong ESG policies.

Interestingly, the study also finds workers who switch from less sustainable firms to more sustainable ones face a wage reduction of approximately 5.6%. This finding provides further evidence of the trade-off workers are willing to make, choosing non-pecuniary benefits over immediate wage gains.

The analysis implies firms with strong sustainability credentials may benefit from lower labor costs. By attracting workers who are willing to accept lower wages in exchange for working in an environmentally responsible company, these firms can reduce their overall wage expenses. This ability could provide a competitive advantage, particularly in a labor market where workers increasingly value sustainability.

Policy and Market Implications

The implications of the Sustainability Wage Gap are far-reaching. The findings suggest labor market policymakers should consider sustainability practices, especially when evaluating labor costs and employee well-being. In particular, policies that encourage firms to adopt sustainability practices may indirectly contribute to reducing wage pressures in certain sectors, especially those with a high concentration of highly skilled workers.

For firms, the research highlights a strategic opportunity: by emphasizing their sustainability credentials, companies may not only improve their corporate reputation but also reduce labor costs. Sustainability becomes an effective tool for attracting young, highly skilled workers who are willing to trade off higher wages for the perceived benefits of working in an environmentally responsible organization.

In the broader context, the study indicates a shift in the labor market, where workers’ preferences for sustainability are becoming an increasingly important determinant of their wage expectations. As the importance of sustainability continues to grow, this wage trade-off may become more pronounced, reshaping the future of work in both high- and low-skill sectors.

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