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The Role of Unobserved Heterogeneity and On-the-Job Training in the Employer Size-Wage Effect: Evidence from Australia

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Author Info
Lixin Cai () (The Institute of Applied Economic and Social Research, University of Melbourne)
C. Jeffrey Waddoups (Department of Economics, University of Nevada, Las Vegas)

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Abstract

The positive relationship between employer size and wages is a ubiquitous feature of advanced industrialized economies. The purpose of the present study is to clarify the nature of the employer size-wage effect in Australia by determining the extent to which it can be explained by observed and unobserved quality differences, including difference in on-the-job training. The empirical results are based on analysis of the Household Income and Labour Dynamics in Australia (HILDA) Survey, which is a relatively new nationally representative panel data set focused on family income, employment, and well-being. Our findings indicate that for males, quality adjusted employer size-wage effects are quite small and mostly driven by lower wages for workers in the smallest firms (fewer than twenty workers). For females, size-wage effects disappear when unobserved quality differences are accounted for. We also find that accounting for differences in the incidence of job training has no effect on the structure of wage differences by employer size.

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File URL: http://www.unlv.edu/projects/RePEc/pdf/0915.pdf
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Publisher Info
Paper provided by University of Nevada, Las Vegas , Department of Economics in its series Working Papers with number 0915.

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Length: 33 pages
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:nlv:wpaper:0915

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Related research
Keywords: size wage effects; fixed effects models; panel data;

Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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  1. Miller, Paul & Mulvey, Charles, 1996. "Unions, Firm Size and Wages," The Economic Record, The Economic Society of Australia, vol. 72(217), pages 138-53, June.
  2. Holtmann, A.G., 1991. "Employer Size And On-The-Job Training Decisions," Discussion Papers 1991_01, Columbia University, Department of Economics.
  3. Schmidt, Christoph M & Zimmermann, Klaus F, 1991. "Work Characteristics, Firm Size and Wages," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 705-10, November. [Downloadable!] (restricted)
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  4. Main, Brian G M & Reilly, Barry, 1993. "The Employer Size-Wage Gap: Evidence for Britain," Economica, London School of Economics and Political Science, vol. 60(238), pages 125-42, May. [Downloadable!] (restricted)
  5. Ana Ferrer & Stéphanie Lluis, 2008. "Should Workers Care about Firm Size?," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 62(1), pages 104-125, October. [Downloadable!] (restricted)
    Other versions:
  6. Charles Brown & James L. Medoff, 1989. "The Employer Size-Wage Effect," NBER Working Papers 2870, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Alison L. Booth & Mark L. Bryan, 2005. "Testing Some Predictions of Human Capital Theory: New Training Evidence from Britain," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 391-394, 06. [Downloadable!] (restricted)
  8. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    Other versions:
  9. 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.
  10. C. Jeffrey Waddoups, 2007. "Employer Size-wage Effects in Australia," LABOUR, CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd, vol. 21(4-5), pages 809-835, December. [Downloadable!] (restricted)
  11. Barron, John M & Black, Dan A & Loewenstein, Mark A, 1987. "Employer Size: The Implications for Search, Training, Capital Investment, Starting Wages, and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 5(1), pages 76-89, January. [Downloadable!] (restricted)
  12. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
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