The firm-pay gender gap and formal sector churn over the life cycle

Abstract

We find that women sorting into lower paying firms explains nearly half of the gender pay gap in South Africa. Using matched employer-employee panel data covering the universe of formal workers, we show sorting varies considerably over the life cycle: the firm-pay gender gap is negligible for the youngest workers, grows steeply for 25–35 year olds (i.e. typical child-rearing years), and narrows for older workers. The increase is driven by those continuously employed — while women are almost as likely as men to switch firms, men are more likely to switch to better-paying firms, consistent with discrimination or non-pay amenities. Churn also contributes to the gap (though is relatively constant), since women enter formal employment at worse-paying firms than men. The relative importance of the continuously employed versus entrants depends on the size of the formal sector, thus linking the life cycle patterns underlying gender gaps with economic development.