Human Capital Accumulation, Equilibrium Wage-Setting and the Life-Cycle Gender Pay Gap

We study how turnover and human capital dynamics shape the life-cycle gender pay gap when employers are forward-looking and able to set gender-specific wage rates. In our equilibrium wage-posting model with learning-by-doing and fertility events, the life-cycle gap can be attributed to worker productivity, job search, employers’ endogenous wagesetting, and job productivity. Estimating the model on NLSY79 data, we find that although the high school and college gender gaps are driven by different forces, employers’ wagesetting accounts for one-third of the gap in both groups. Neglecting interactions between turnover and human capital dynamics biases down the estimated role of turnover substantially.