For those who haven't figured it out the level difference is capped at a hard 40% damage reduction. Otherwise a lvl 20 couldn't damage a lvl 26 at all. The lvl certainly does make a difference, but it is about as subtle as doing a lvl 20 mission at lvl 18. I'm lvl 27 and I notice that most lvl 29 people can out gun my by about 1 shot. Its not much, but it makes a difference.