Equal Pay for Equal Work, gender earnings gap and the distribution of household income

Towards Equal Pay in the EU: What Would It Take?

By Sofía Maier (co-authored work with Silvia De Poli)

Background
Despite being a founding principle of the EU since 1957, women in Europe still earn less than men - per hour worked, when performing the same job. According to our estimates, on average, women’s gross hourly wages are about 12% lower than men's when performing similar work. In 2022, the EU approved new binding pay transparency measures aimed at closing this gap.

Key Questions

How much of the gender pay gap stems from unequal pay for equal work?

What are the potential distributional effects (on wages, poverty, and inequality) of closing this gap?

How do results vary across EU countries?

Methodology

The study uses detailed EU-wide microdata and a novel matching method to estimate the adjusted gender pay gap (AGPG): differences in pay between men and women doing similar jobs. Then, using the EUROMOD tax-benefit model, the authors simulate two scenarios:

1. " 3pp": a 3 percentage point (pp) reduction in the AGPG, reflecting expected effects of new EU pay transparency rules.

2. "Full": a complete closure of the AGPG (i.e., full enforcement of “equal pay for equal work”).
   
   

Main results

Most of the gender pay gap is due to unequal pay for equal work.
In two-thirds of EU countries, over 75% of the gap remains even after controlling for differences in job type, education, and experience.

Large cross-country differences
Adjusted gaps are largest in Central and Eastern Europe (e.g., Estonia, Bulgaria), and smallest in Western and Northern Europe (e.g., Germany, Denmark). 

Distributional impacts are highly uneven:

• • Under the 3pp reduction scenario, the gender gap in annual labour earnings would fall from 28% to 26%

  • Under full equal pay enforcement, it would fall to 20%, but women would still earn less due to fewer hours and lower employment.

  • If the closure of the gap is through an increase in women wages:

• income poverty (AROP rates based on household disposable incomes after taxes and benefits) would slightly decrease under the 3pp scenario (the strongest impact is almost 0.5 pp, in Spain), and between 1pp and 1.5pp are the strongest effects on poverty in the full reduction scenario (taking place in Cyprus, Estonia, Latvia and Portugal). 

• in-work poverty for women would decline on average by 4 percentage points, with stronger effects in countries like Estonia and Romania.

Policy design matters
Results differ sharply depending on whether the pay gap is closed by raising women’s wages or lowering men’s. Adjusting wages upward benefits women directly, reduces income poverty but slightly increases income inequality (composition effect: employed women are towards middle and top of the income distribution). If wages are adjusted downwards, results of the opposite sign: inequality decreases while poverty would slightly increase. Cross-country differences on the distribution of household disposable income are driven, among others, by different tax-benefit rules.

Conclusions

• Binding pay transparency measures can reduce wage gaps; but alone are not enough to eliminate them.

• For meaningful change, these measures must be part of broader strategies, including better childcare policies, collective bargaining, and labour market reforms.

• EU countries must tailor implementation to national contexts, as the roots and effects of wage gaps differ significantly.