Is the Rule of Law Significant for Explanation of Differences in the Gender Pay Gap?

Abstract

Using data from European Union Statistics on Income and Living Conditions, the study examines the causes of variation in the unexplained gender pay gap among 25 European countries and considers the effect of the legal environment on these. We employ the Oaxaca-Blinder decomposition to estimate the unexplained part of the gender pay gap. To assess the impact of the rule of law on unexplained gender wage differences, we apply a linear regression model, where the estimated unexplained gender pay gap is used as a dependent variable and selected rule of law indicators (specifically the Worldwide Governance Indicators Rule of Law and the Legal System & Property Rights Index) as explanatory variables. Controlling for other institutions affecting gender wage differences (specifically labour market regulation, work-family reconciliation policy and male wage dispersion), we suggest that differences in the quality of legislation and law enforcement across European countries may partly account for the variation in the unexplained gender pay gap. A very progressive improvement in rule of law indices (from the worst to the best among the 25 European countries examined) leads to a decrease in the unexplained gender pay gap by 4.5-5 percentage points.