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Human Capital Risk and the Firmsize Wage Premium

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  • 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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Bibliographic Info

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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Keywords: Economic models; Labour markets; Productivity;

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  1. Rogerson, Richard & Schindler, Martin, 2002. "The welfare costs of worker displacement," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1213-1234, September.
  2. Kenneth R. Troske, 1998. "Evidence on the Employer Size-Wage Premium From Worker-Establishment Matched Data," Labor and Demography 9807001, EconWPA.
  3. Shintaro Yamaguchi, 2007. "Job Search, Bargaining, and Wage Dynamics," Department of Economics Working Papers 2007-03, McMaster University.
  4. 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.
  5. Zhang, Xuelin & Morissette, Rene & 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.
  6. 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.
  7. Dan A. Black & Brett J. Noel & Zheng Wang, 1999. "On-the-Job Training, Establishment Size, and Firm Size: Evidence for Economies of Scale in the Production of Human Capital," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 82-100, July.
  8. 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.
  9. Bart Hobijn & Aysegül Sahin, 2007. "Job-finding and separation rates in the OECD," Staff Reports 298, Federal Reserve Bank of New York.
  10. Jean-Marc Robin & Francois Fontaine & Fabien Postel-Vinay & Jesper Bagger, 2011. "A Feasible Equilibrium Search Model of Individual Wage Dynamics with Experience Accumulation," 2011 Meeting Papers 278, Society for Economic Dynamics.
  11. Winter-Ebmer, Rudolf, 2001. "Firm Size, Earnings, and Displacement Risk," Economic Inquiry, Western Economic Association International, vol. 39(3), pages 474-86, July.
  12. Tom Krebs, 2004. "Welfare Cost of Business Cycles When Markets Are Incomplete," Working Papers 2004-08, Brown University, Department of Economics.
  13. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1992. "Earnings losses of displaced workers," Working Paper Series, Macroeconomic Issues 92-28, Federal Reserve Bank of Chicago.
  14. 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 Centre for Human Capital and Productivity Working Papers 20051, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  15. 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.
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