Product Market and the Size-Wage Differential
AbstractThis paper constructs a model to show that plants differing in size pay different wages to homogeneous workers. A large plant can use its large capacity to satisify buyers in the product market more readily and so can charge a higher price than a small plant can. As a result, a large plant has a higher sales revenue per worker. To capture this large revenue, large plants post high wages to recruit. The size-wage differential is shown to survive the labor market competition and entry by new plants. Entry and recruiting generate a stationary distribution of plants in the industry that interacts with the size-wage differential. With numerical examples it is shown that an increase in the demand for the industry's product reduces the size-revenue differential and shifts the size distribution in the industry towards small plants. The overall effect is such that the size-wage differential increases when the product demand is initially low and falls when the product demand is already high.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 972.
Date of creation: Jun 1998
Date of revision:
Size-Wage Differentail; Price/Wage Posting; Size Distribution of Plants;
Other versions of this item:
- J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
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