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Employer size-wage effects: evidence from matched employer-employee survey data in the UK

  • Clive Belfield
  • Xiangdong Wei

This paper employs a random sample of matched employer-employee data from the UK to test seven possible explanations for the positive relationship between employer size and pay. Individual wage equations show a large employer size-wage premium. We then control for a range of establishment-level variables, based on seven hypotheses typically advanced to explain this premium. Each establishment-level factor reduces the wage premium, but a sizeable premium nonetheless remains. In adjudicating on these hypotheses, we find a strong association between the internal labour market and the employer size-wage premium. This finding supports the theory that the employer size-wage effect may be due to the higher costs of turnover or monitoring in larger firms. However, we find contrasting effects for public versus private sector establishments.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 36 (2004)
Issue (Month): 3 ()
Pages: 185-193

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Handle: RePEc:taf:applec:v:36:y:2004:i:3:p:185-193
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  1. Dunne, Timothy & Schmitz, James A, Jr, 1995. "Wages, Employment Structure and Employer Size-Wage Premia: Their Relationship to Advanced-Technology Usage at US Manufacturing Establishments," Economica, London School of Economics and Political Science, vol. 62(245), pages 89-107, February.
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  6. John Addison & Stanley Siebert & Joachim Wagner & Xiangdong Wei, 2000. "Worker Participation and Firm Performance: Evidence from Germany and Britain," British Journal of Industrial Relations, London School of Economics, vol. 38(1), pages 7-48, 03.
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  12. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
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  15. 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.
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