Valuation of Human Capital and the Gender Wage Gap in Europe

Abstract

This paper investigates the gender wage gap in relation to the multi-dimensional human capital measure across 17 European countries. To date, the role of cognitive and task-specific skills had a limited empirical evidence in the gender wage gap literature. We narrow this research gap by relying on PIAAC (Program of International Assessment of Adult Competencies) data and applying Gelbach’s (2016) decomposition methodology. The analysis reveals that occupation-/industry-specific work experience and task-specific cognitive and non-cognitive skills are the most rewarding human capital attainments. Work experience largely decreases the gender wage disparity in all analysed countries. Cognitive numeracy skill is another strong predictor of gender wage disparity. The effect of numeracy is rather homogeneous across countries, namely, controlling for numeracy reduces the wage gap. Unlike studies that stress the decreasing importance of human capital in gender wage gap assessments, we argue that a narrow definition of human capital may undermine the actual effect of the latter. Therefore, we conclude that human capital should be viewed as a combination of multiple characteristics and traits, each having specific valuation on the labour market, and thus, a particular role in explaining the gender wage gap.