A European Analysis of Changes in Gender Specific Wage Inequality Using Decomposition Methods

We analyze wage growth and changes in wage inequality in eleven European countries between 1994 and 2001. The data base used throughout is the User Data Base (UDB) of the European Community Household Panel (ECHP). The decomposition analysis is carried out independently for both genders. Following Juhn, Murphy and Pierce (1991 and 1993) we split the current wage into components to isolate the forces underlying the wage change. While the decomposition method is in the spirit of the well known Oaxaca decomposition (1973), in the approach of Juhn, Murphy and Pierce the residual of Mincerian-earnings equations is decomposed further into relative rank position and the effect of the residual distribution. We find wage inequality to be greater among men for most northern countries of the EU, while in southern countries, wage inequality is greater between woman. Between 1994 and 2001, wage inequality was found to have moved in the same direction for men and woman in all countries. Inequality increased in five countries, most pronounced in the Netherlands, and decreased in six countries, and the most in Ireland. The decomposition of the change in inequality into quality, price and unobserved effects revealed that the quality effect explained only about 50% of the unobserved effect and slightly less than the price effect. Altogether, the development of wages across the EU has been very heterogenous thus preventing any valid general conclusions about the EU as a whole.