Firm size and wages
In: Handbook of Labor Economics
AbstractJobs differ along many dimensions including firm size. The wage gap due to firm size of 35% is comparable to the gender wage gap of 36% for men over women and greater than the wage gap of 14% for whites over black employees. The size-wage premium is larger for men and varies across industries. It is larger in the US than in other industrialized countries. Large firms demand a higher quality of labor defined by such observable characteristics as education, job tenure, and a higher fraction of full-time workers. Part 3 examines three behavioral explanations. (1) Productive employees are matched with able entrepreneurs to minimize the sum of wages and monitoring costs. (2) Big firms pay efficiency wages to deter shirking. (3) Big firms adopt a discretionary wage policy to share rents, or in Slichter's words, "Wages over a considerable range reflect managerial discretion. When management can easily afford to pay high wages, they tend to do so." We advance a productivity hypothesis. A large organization sets a higher performance standard that raises labor productivity but has to be supported by a compensating wage difference. In the service industries, the pace of work depends on the customer arrival rate. The economies of massed reserves generates a positive wage-size profile. The capital/labor ratio is higher in bigger firms which also are early in adopting new technologies. Both forces raise the demand for skilled labor where skill and productivity are often unobservable traits. Production organized around teams calls for conformance to common work rules which result in paying rents to infra-marginal team members. The odds of survival are higher for big firms which enable them to "produce" more durable employees who are more productive because they get more training. Firm size is a function of external market forces, technology, managerial decisions, and luck. The surplus of revenues over labor costs per employee is positively related to firm size for three reasons, lower prices for non-labor inputs, possibly greater market power, or larger overhead costs to amortize the sunk costs for capital and firm -specific work force. Rent sharing cannot be dismissed as an explanation for the wage-size premium. Taxation and regulation can also affect the size distribution of firms. The organization of work and the selection of employees (whose productive traits are not always observable) are responsible for the positive relation between wages and employer size.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
This chapter was published in:
This item is provided by Elsevier in its series Handbook of Labor Economics with number 3-33.
Contact details of provider:
Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description
Find related papers by JEL classification:
- J0 - Labor and Demographic Economics - - General
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.