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Employer Size or Skill Group Size Effect on Wages?

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  • Erling Barth
  • Harald Dale-Olsen

Abstract

The authors analyze explanations for firm- or establishment-size effects on wages. One theory is that each firm faces an upward sloping supply curve for labor, implying that the number of any particular type of worker should matter for his or her level of pay, rather than the total number of workers in the firm. To test this hypothesis, the authors add the log of skill group size to the standard log wage equation. Results indicate that the traditional employer-size effect on wages dwindles away once control for the number of workers of the same skill group (educational type) as the observed individual within the establishment is added to the equation. The skill group size effect on wages is substantial. After controlling for both individual- and establishment-specific heterogeneity, a dwindling employer-size effect and a significant group size effect remain.

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Bibliographic Info

Article provided by ILR Review, Cornell University, ILR School in its journal ILR Review.

Volume (Year): 64 (2011)
Issue (Month): 2 (January)
Pages: 341-355

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Handle: RePEc:ilr:articl:v:64:y:2011:i:2:p:341-355

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  1. Barth, E. & Raaum, O. & Naylor, R., 1998. "Union Wage Effects: Does Membership Matter?," The Warwick Economics Research Paper Series (TWERPS) 500, University of Warwick, Department of Economics.
  2. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation by Skill," NBER Working Papers 5718, National Bureau of Economic Research, Inc.
  3. Moene, Karl O, 1988. "Unions' Threats and Wage Determination," Economic Journal, Royal Economic Society, vol. 98(391), pages 471-83, June.
  4. Salop, S. C., 1973. "Wage differentials in a dynamic theory of the firm," Journal of Economic Theory, Elsevier, vol. 6(4), pages 321-344, August.
  5. Hamermesh, Daniel S & Goldfarb, Robert S, 1970. "Manpower Programs in a Local Labor Market: A Theoretical Note," American Economic Review, American Economic Association, vol. 60(4), pages 706-09, September.
  6. Mortensen, Dale T., 1987. "Job search and labor market analysis," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 15, pages 849-919 Elsevier.
  7. Kenneth Burdett & Dale T. Mortensen, 1989. "Equilibrium Wage Differentials and Employer Size," Discussion Papers 860, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214 Elsevier.
  9. Albaek, Karsten & Arai, Mahmood & Asplund, Rita & Barth, Erling & Strojer Madsen, Erik, 1998. "Measuring wage effects of plant size," Labour Economics, Elsevier, vol. 5(4), pages 425-448, December.
  10. Green, Francis & Machin, Stephen & Manning, Alan, 1996. "The Employer Size-Wage Effect: Can Dynamic Monopsony Provide an Explanation?," Oxford Economic Papers, Oxford University Press, vol. 48(3), pages 433-55, July.
  11. Alan Manning, 1994. "Labour Markets with Company Wage Policies," CEP Discussion Papers dp0214, Centre for Economic Performance, LSE.
  12. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
  13. 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.
  14. Burdett, Kenneth & Vishwanath, Tara, 1988. "Balanced Matching and Labor Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 1048-65, October.
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