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New Explanations for the Firm Size-Wage Premium

Author

Listed:
  • Nien-Pen Liu

    (PhD candidate, Graduate Institute of Industrial Economics, National Central University, Taiwan, R.O.C.)

  • Dachrahn Wu

    (Department of Economics, National Central University, Taiwan, R.O.C.)

Abstract

This paper contributes some new explanations for the firm size-wage premium. We find that if the difference between the two types¡¦ status quo utility levels is large enough, then the small firm will reject the good agent more often than the large firm. The reason behind this result is that the capital-like resource restriction interferes with the willingness of the small firm to mitigate the information rent caused by the countervailing incentive. Moreover, when the countervailing incentive exists and when both firms want to delegate the tasks to both types, the good agent produces more output in the large firm and therefore gets a higher payment. These findings support the labor quality explanation that larger firms employ higher-quality workers and the productivity hypothesis that workers are more productive in large firms and therefore ask for higher wages, but from a kind of markedly different reasoning.

Suggested Citation

  • Nien-Pen Liu & Dachrahn Wu, 2007. "New Explanations for the Firm Size-Wage Premium," Economics Bulletin, AccessEcon, vol. 10(2), pages 1-7.
    • Handle: RePEc:ebl:ecbull:eb-06j30005
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    References listed on IDEAS

    as
    1. Kenneth R. Troske, 1999. "Evidence On The Employer Size-Wage Premium From Worker-Establishment Matched Data," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 15-26, February.
    2. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
    3. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-1059, October.
    4. Jullien, Bruno, 2000. "Participation Constraints in Adverse Selection Models," Journal of Economic Theory, Elsevier, vol. 93(1), pages 1-47, July.
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    Cited by:

    1. Aguirre Pérez, Iñaki & Beitia Ruiz de Mendarozqueta, María Aranzazu, 2014. "Countervailing incentives in adverse selection models. A synthesis," IKERLANAK info:eu-repo/grantAgreeme, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.

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    More about this item

    Keywords

    Firm size-wage premium Countervailing incentives Employment decisions.;

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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