Gender wage differentials and discrimination in the UK and Europe.

Gender wage differentials and discrimination are issues of primary significance both in terms of equity and efficiency. Current policy debate emphasises the importance of labour market efficiency with various HM Treasury reports highlighting productivity as the key determinant of economic growth. Consequently a deeper understanding of where the labour market allocates its scare human resource inefficiently, as a result of discrimination, is always desirable. The vast majority of the existing literature is based upon single country studies using cross-sectional data. This has led to weaknesses in our understanding of the inter-temporal processes generating changes to the wage gap, as well as the impact of national differences to relative cross-country gender differentials. Using the UK as the major focus, and other European countries for comparison, this thesis improves upon both of these. Paying particular attention to the roles played by inequality and sample selection. Blau and Kahn (1992) initially highlighted the importance of wage inequality to cross-country wage gaps. This is built upon by applying the techniques they pioneered and making use of the higher levels of comparability and compatibility inherent within the Panel Comparability Project (PACO) and European Community Household Panel (ECHP) data sets. With the analysis revealing that the gender wage gap would be narrower in the UK if the level of inequality was reduced to those in the rest of Europe. Thus supporting the view that a compression of the overall wage distribution leads to smaller gender wage gaps. The issue of sample selection is always present when empirical work is based upon earnings functions. Since Heckman (1979) it has become the norm to correct for possible bias using his two-stage procedure. However this is generally treated as a technical exercise and rarely warrants any meaningful discussion. Unfortunately selectivity is not merely a source of potential bias it also reflects relationships that have a significant effect upon the gender wage gap, most importantly its inter-temporal path. Consequently there is a clear need for a deeper understanding of this issue. It is revealed to be important, especially in the UK, where changes to the skill levels of those employed, relative to the overall population, are shown to be crucial to the narrowing of the wage gap. With this improvement resulting from more favourable skill endowments for those women entering or re-entering paid employment. This indicates that policies addressing human capital accumulation prior to labour market entry have already been successful in narrowing the differential. However there is still evidence that women are receiving inequitable returns from their human capital, hence more effective legislation addressing this is a matter of priorit