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Human Capital Risk and the Firmsize Wage Premium

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Author Info
Danny Leung
Alexander Ueberfeldt
Abstract

Why do employed persons in large firms earn more than employed persons in small firms, even after controlling for observable characteristics? Complementary to previous results, this paper proposes a mechanism that gives an answer to this question. In the model, individuals accumulate human capital and are exposed to the risk of losing some of their human capital as they change jobs, voluntarily or involuntarily. The model, calibrated to the United States and Canada, accounts for one-third of the firmsize wage premium. Regarding the earnings gap between Canada and the United States, the model finds that it is solely due to differences in labor market uncertainty.

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File URL: http://www.bankofcanada.ca/en/res/wp/2008/wp08-33.pdf
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Paper provided by Bank of Canada in its series Working Papers with number 08-33.

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Length: 53 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:bca:bocawp:08-33

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Related research
Keywords: Economic models; Labour markets; Productivity;

Find related papers by JEL classification:
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Neumark, David & Polsky, Daniel & Hansen, Daniel, 1999. "Has Job Stability Declined Yet? New Evidence for the 1990s," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages S29-64, October. [Downloadable!] (restricted)
    Other versions:
  2. Heisz, Andrew, 2002. "The Evolution of Job Stability in Canada: Trends and Comparisons to U.S. Results," Analytical Studies Branch Research Paper Series 2002162e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
  3. Winter-Ebmer, Rudolf, 2001. "Firm Size, Earnings, and Displacement Risk," Economic Inquiry, Oxford University Press, vol. 39(3), pages 474-86, July.
  4. Audra J. Bowlus & Chris Robinson, 2005. "The Contribution of Post-Secondary Education to Human Capital Stocks in Canada and the United States," University of Western Ontario, CIBC Human Capital and Productivity Project Working Papers 20051, University of Western Ontario, CIBC Human Capital and Productivity Project. [Downloadable!]
  5. Rogerson, Richard & Schindler, Martin, 2002. "The welfare costs of worker displacement," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1213-1234, September. [Downloadable!] (restricted)
  6. Morissette, René & Zhang, Xuelin & Frenette, Marc, 2007. "Earnings Losses of Displaced Workers: Canadian Evidence from a Large Administrative Database on Firm Closures and Mass Layoffs," Analytical Studies Branch Research Paper Series 2007291e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
  7. Tom Krebs, 2007. "Job Displacement Risk and the Cost of Business Cycles," American Economic Review, American Economic Association, vol. 97(3), pages 664-686, June. [Downloadable!]
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  8. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September. [Downloadable!] (restricted)
    Other versions:
  9. Bart Hobijn & Aysegül Sahin, 2007. "Job-finding and separation rates in the OECD," Staff Reports 298, Federal Reserve Bank of New York. [Downloadable!]
  10. Kenneth R Troske, 1994. "Evidence on the Employer Size-Wage Premium From Worker-Establishment Matched Data," Working Papers 94-10, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
    Other versions:
  11. Mayo, John W & Murray, Matthew N, 1991. "Firm Size, Employment Risk and Wages: Further Insights on a Persistent Puzzle," Applied Economics, Taylor and Francis Journals, vol. 23(8), pages 1351-59, August.
  12. Audra J. Bowlus, 1998. "U.S.-Canadian Unemployment and Wage Differences Among Young Low-Skilled Males in the 1980s," Canadian Journal of Economics, Canadian Economics Association, vol. 31(2), pages 437-464, May.
  13. Jesper Bager & Francois Fontaine & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "A Feasible Equilibrium Search Model of Individual Wage Dynamics with Experience Accumulation," 2006 Meeting Papers 679, Society for Economic Dynamics.
  14. Shintaro Yamaguchi, 2007. "Job Search, Bargaining, and Wage Dynamics," Department of Economics Working Papers 2007-03, McMaster University. [Downloadable!]
    Other versions:
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