Does where you work matter more than what you do?

South Africa is characterized by persistently high income inequality. Since wage income is the primary source of earnings for most workers, understanding what drives pay differences is central to addressing inequality. This requires looking not only at who workers are, but also at where they work. Evidence on the role of firms in shaping wages has been limited. A new study uses administrative data to examine pay inequality within and across South African firms and assess the role of firm characteristics. It shows that workers with similar skills and experience can earn very different wages depending on their employer. These differences are linked to firm size, industry, profitability, location, and foreign ownership. The analysis draws on matched employer–employee tax data covering 2011–2019. By linking workers’ tax records with firm-level tax data, the study observes both workers and firms, providing a fuller picture of how wages are determined. The data only covers the formal sector, and not the informal sector, a substantial share of South Africa’s labour market. Wage inequality in South Africa is extremely high [TS2.1][AL2.2]and remained broadly stable between 2011 and 2019 Worker characteristics account for around 35% of overall wage inequality, while firm characteristics account for about 18% Sorting of higher-skilled workers into higher-paying firms further amplifies inequality Firm size, industry, profitability, geographic location, and foreign ownership are all associated with systematic differences in pay