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The Formal Sector Wage Premium and Firm Size

Author

Listed:
  • El Badaoui, Eliane

    (University Paris Ouest-Nanterre)

  • Strobl, Eric

    (University of Bern)

  • Walsh, Frank

    (University College Dublin)

Abstract

We show theoretically that when larger firms pay higher wages and are more likely to be caught defaulting on labour taxes, then large high-wage firms will be in the formal sector and small low-wage firms will be in the informal sector. The formal sector wage premium is thus just a firm size wage differential. Using data from the South African labour force survey we illustrate that firm size is indeed the key variable determining whether a formal sector premium exists.

Suggested Citation

  • El Badaoui, Eliane & Strobl, Eric & Walsh, Frank, 2007. "The Formal Sector Wage Premium and Firm Size," IZA Discussion Papers 3145, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3145
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    More about this item

    Keywords

    informal sector; wage premium; firm size;
    All these keywords.

    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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