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The Relationship between Wages and Firm Size: An Information Theoretic Analysis

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  • Strand, Jon

Abstract

The paper derives a positive relationship between the size of establishments and their average wage levels, together with a continuous wage distribution, from a model where firm sizes are endogenous. A fraction of the workers are imperfectly informed from friends about firms' wage strategies and the rest search among firms at random. The greater the share of workers that are informed, the higher is the average wage level and the smaller is the difference between firms' wage levels. Costly interfirm labor mobility is in general shown to be socially excessive. Copyright 1987 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Strand, Jon, 1987. "The Relationship between Wages and Firm Size: An Information Theoretic Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 51-68, February.
  • Handle: RePEc:ier:iecrev:v:28:y:1987:i:1:p:51-68
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    Cited by:

    1. Gerlach, Knut & Schmidt, Elke Maria, 1989. "Unternehmensgröße und Entlohnung," Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 22(3), pages 355-373.
    2. repec:iab:iabmit:v:22:i:3:p:355-373 is not listed on IDEAS
    3. Knut Gerlach & OLAF HÜBLER, 1998. "Firm Size and Wages in Germany – Trends and Impacts of Mobility," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 25(3), pages 245-261, January.
    4. Paul Hettler, 2007. "The Decomposition of Firm-size Wage Differentials," Journal of Labor Research, Springer, vol. 28(3), pages 477-486, July.

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