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This paper provides evidences on the effects of unobserved individual heterogeneity on estimated gender pay differentials. Using the European Community Household Panel (ECHP), we present a crosscountry comparison of the evolution of unadjusted and adjusted gender pay gaps using both cross-section and panel data estimation techniques. The analysed countries differ greatly with respect to labour market legislation, bargaining practices structure of earnings and female employment rates.. Once adjusting for unobserved heterogeneity, we find a narrowed male-female pay differential, as well as significantly different rates of return on individual characteristics. In particularly, the adjusted wage differential decreases by 7% in Belgium, 14% in Ireland, between 20-30% Germany, Italy, the Netherlands and Spain and of 41% and 54% in the UK and in Denmark respectively.

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