Analyzing Critical Junctures between Globalization and the Gender Wage Gap in Europe

Abstract

The purpose of this study is to investigate the dominating country level influences on gender inequality in Europe. Using the gender wage gap as a proxy for gender inequality, this study tests the hypothesis of whether a country's domestic characteristics, such as Gross Domestic Product (GDP), labor structure, governance, and education, have a greater influence on the gender wage gap compared to global factors. To test this hypothesis, this study uses panel data for 35 European and North American countries from 2000 to 2008.

The key findings of the econometric analysis are the following: (1) Foreign Direct Investment (FDI) increases the gender pay gap, but capital account openness reduces the wage gap. (2) Through FDI, foreign firms appear to be adopting domestic wage setting practices, where foreign firms with larger gender pay gaps are associated with lower gender pay gaps in domestic countries. (3) Female life expectancy is positively correlated.(4) Female tertiary school enrollment rates and union strength are negatively correlated with the gender pay gap.

These findings indicate that the effects of globalization on domestic gender pay gaps are constrained by domestic labor institutions, such as union strength, work force demographics, and female human capital endowments. In order to reduce the persistent gender wage gap, governments must address these domestic labor market challenges.