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Employer Size and the Wage Structure in U.S. Manufacturing

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  • Steven J. DAVIS
  • John HALTIWANGER

Abstract

We study how the hourly wage structure varies with establishment size and how wage dispersion breaks down into between-plant and within-plant components. Our study combines household and establishment data for the U.S. manufacturing sector in 1982. 1. Wage dispersion falls sharply with establishment size for nonproduction workers and mildly for production workers. 2. Size-class differences in wage dispersion often mask even sharper differences in the dispersion of wages generated by observable worker characteristics and in the "skill prices" on those characteristics. 3. In terms of dispersion in predicted log wages, • worker heterogeneity tends to rise with establishment size; • production workers are much more homogeneous in the union sector, but only at plants with 1,000 or more workers. 4. Unobserved factors generate sharply greater wage dispersion at smaller establishments. 5. The variance in mean wages across establishments accounts for 59% of total variance. Within-plant wage variance among production workers accounts for a mere 2%. 6. Mean wage differences by size of establishment account for about one-fourth of the total between-plant variance of wages. 7. Between-plant wage dispersion falls sharply with establishment size, entirely accounting for the negative relationship of establishment size to overall wage dispersion. Guide by these and other empirical findings, we assess several hypotheses about the determination of the wage structure.

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Bibliographic Info

Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (1996)
Issue (Month): 41-42 ()
Pages: 323-367

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Handle: RePEc:adr:anecst:y:1996:i:41-42:p:14

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  1. Steve J. Davis & John Haltiwanger, 1991. "Gross job creation, gross job destruction and employment reallocation," Working Paper Series, Macroeconomic Issues 91-5, Federal Reserve Bank of Chicago.
  2. Kahn, Lawrence M & Curme, Michael, 1987. "Unions and Nonunion Wage Dispersion," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 600-607, November.
  3. Paula B. Voos, 1983. "Union organizing: Costs and benefits," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 36(4), pages 576-591, July.
  4. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
  5. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  6. Garen, John E, 1985. "Worker Heterogeneity, Job Screening, and Firm Size," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 715-39, August.
  7. Richard B. Freeman, 1980. "Unionism and the dispersion of wages," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 34(1), pages 3-23, October.
  8. Rosen, Sherwin, 1987. "The theory of equalizing differences," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 12, pages 641-692 Elsevier.
  9. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-59, October.
  10. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers 1-87-5, Pennsylvania State - Department of Economics.
  11. Lawrence F. Katz & Kevin M. Murphy, 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," NBER Working Papers 3927, National Bureau of Economic Research, Inc.
  12. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  13. Richard Ericson & Ariel Pakes, 1992. "An Alternative Theory of Firm and Industry Dynamics," Cowles Foundation Discussion Papers 1041, Cowles Foundation for Research in Economics, Yale University.
  14. Steve J. Davis & John Haltiwanger, 1991. "Wage Dispersion Between and Within U.S. Manufacturing Plants, 1963-1986," NBER Working Papers 3722, National Bureau of Economic Research, Inc.
  15. Mellow, Wesley, 1982. "Employer Size and Wages," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 495-501, August.
  16. Farber, Henry S & Saks, Daniel H, 1980. "Why Workers Want Unions: The Role of Relative Wages and Job Characteristics," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 349-69, April.
  17. repec:att:wimass:8904 is not listed on IDEAS
  18. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  19. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
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