Hierarchy and the Employer Size Effect on Wages: Evidence from Britain

We argue that employer size wage effects reflect the role of hierarchy. Using matched employer–employee data and individual longitudinal data, we show that the employer size wage effects for supervisors are approximately twice those for non‐supervisors. We confirm sorting on supervisor ability, and present evidence of additional match‐specific wage returns for supervisors. We demonstrate that spans of control influence the establishment size return for supervisors but not for non‐supervisors. Talented supervisors sort into larger establishments taking a talent premium with them, but they also receive a match‐specific return on that talent only when matched with a larger establishment.