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Firm characteristics, labor sorting, and wages

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  • Alcala, Francisco
  • Hernandez, Pedro J.

Abstract

We analyze in a simple model the consequences of efficiency heterogeneity at the firm level for the sorting of workers with different skills into firms with different characteristics. We show that more efficient firms tend to produce higher quality output in equilibrium, which then translates into higher relative demand of education and unmeasured skills. The model provides an integrated explanation within a competitive framework for the observed correlations between several establishment characteristics (size, employees’ average education, capital/labor ratio, and remoteness of selling markets) and average wages. We test the implications of the model using Spanish employer-employee matched data that allow to simultaneously control for establishment and worker characteristics. We find that average education in the establishment is increasing in the remoteness of its main market. Establishment’s size, remoteness of main market, and co-workers’ average education have significant, robust and quantitatively important positive joint effects on wages. The national-market orientation effects (with respect to local-market orientation) on labor composition and wages are at least as important as the international-market effects (with respect to national-market orientation). All wage premia are non-decreasing on worker education and most of them are strictly increasing, suggesting that unmeasured skills are relatively more important for high-education workers.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1226.

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Date of creation: Oct 2005
Date of revision: 17 Nov 2006
Handle: RePEc:pra:mprapa:1226

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Keywords: Quality Competition; Exporting Firms; Unobservable Skills; Wages;

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References

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  1. Walter Y. Oi & Todd L. Idson, 1999. "Workers Are More Productive in Large Firms," American Economic Review, American Economic Association, vol. 89(2), pages 104-108, May.
  2. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
  3. Bernard, Andrew B. & Jensen, J. Bradford, 1997. "Exporters, skill upgrading, and the wage gap," Journal of International Economics, Elsevier, vol. 42(1-2), pages 3-31, February.
  4. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  5. Thierry Lallemand & Robert Plasman & François Rycx, 2007. "The establishment-size wage premium: evidence from European countries," ULB Institutional Repository 2013/8735, ULB -- Universite Libre de Bruxelles.
  6. Bernard, A. & Wagner, J., 1996. "Exports and Success in German Manufacturing," Working papers 96-10, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and Productivity in International Trade," Boston University - Institute for Economic Development 105, Boston University, Institute for Economic Development.
  8. John M. Abowd & Francis Kramarz & David N. Margolis, 1994. "High-Wage Workers and High-Wage Firms," CIRANO Working Papers 94s-23, CIRANO.
  9. repec:rus:hseeco:122439 is not listed on IDEAS
  10. Mahmood Arai, 2003. "Wages, Profits, and Capital Intensity: Evidence from Matched Worker-Firm Data," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 593-618, July.
  11. Schank, Thorsten & Schnabel, Claus & Wagner, Joachim, 2007. "Do exporters really pay higher wages? First evidence from German linked employer-employee data," Journal of International Economics, Elsevier, vol. 72(1), pages 52-74, May.
  12. Card, David & de la Rica, Sara, 2004. "The Effect of Firm-Level Contracts on the Structure of Wages: Evidence from Matched Employer-Employee Data," IZA Discussion Papers 1421, Institute for the Study of Labor (IZA).
  13. Maurin, Eric & Thesmar, David & Thoenig, Mathias, 2002. "Globalization and the demand for skill: An Export Based Channel," CEPR Discussion Papers 3406, C.E.P.R. Discussion Papers.
  14. Abowd, John M. & Kramarz, Francis, 1999. "The analysis of labor markets using matched employer-employee data," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 40, pages 2629-2710 Elsevier.
  15. Kenneth R. Troske & Kimberly Bayard, 1999. "Examining the Employer-Size Wage Premium in the Manufacturing, Retail Trade, and Service Industries Using Employer-Employee Matched Data," American Economic Review, American Economic Association, vol. 89(2), pages 99-103, May.
  16. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214 Elsevier.
  17. Battu, Harminder & Belfield, Clive R. & Sloane, Peter J., 2001. "Human Capital Spill-Overs Within the Workplace," IZA Discussion Papers 404, Institute for the Study of Labor (IZA).
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