Gender pay differences in the European Union : do higher wages make up for discrimination

This paper explores the role of social interactions at the work floor for understanding gender pay differences in the EU. Using data from the Fourth European Working Conditions Survey, we find that sex similarity of subordinate and supervisor decreases the pay disadvantage for women in non-managerial occupations, though working for a female boss is associated with a lower wage than working for a man. This may point at a 'discrimination-for-pay' effect. Female workers can avoid part of the discrimination against them by working for a woman and accepting lower pay. And when they face stronger discrimination in case of a male supervisor, they are 'bribed' by a higher salary. Different results are obtained for managerial workers where sex similarity of worker and superior instead puts women at a further disadvantage. In addition to effects of vertical gender segregation, we examine whether wage formation is influenced by the proportion of women per sector (i.e., horizontal segregation), but we find only weak support for the so-called social bias theory. Our main message is that while the traditional human capital model tends to study the wage formation process in isolation, gender pay differentials can also be seen as a social phenomenon, stemming from social interactions in labour markets.