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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.

Suggested Citation

  • Danny Leung & Alexander Ueberfeldt, 2008. "Human Capital Risk and the Firmsize Wage Premium," Staff Working Papers 08-33, Bank of Canada.
    • Handle: RePEc:bca:bocawp:08-33
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    References listed on IDEAS

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    More about this item

    Keywords

    Economic models; Labour markets; Productivity;
    All these keywords.

    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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