This working paper investigates wage differences across Europe. It estimates to what extent wage gaps in average wages observed between countries are related to differences in workforce composition, in workplaces, as well as the types of jobs conducted in different countries. This report also assesses the observed differences in returns on endowments by identifying which sectors and occupational groups contribute most to the wage gaps observed at the country level.
The wage gaps between high-wage and low-wage countries are higher once differences in worker, work and workplace characteristics are controlled for. In contrast, the differences in wages between high-wage countries diminish when we control for these characteristics. The wage gap between East and West thus seems to be driven by a much lower return on skills and the relative position of sectors and occupations in high-wage countries, rather than by differences in the composition of the workforce and firms.