Firm Size, Technical Change and Wages: Evidence from the Pork Sector from 1990-2005

A long-standing puzzle in labor economics has been the positive relationship between wages and firm size. Even after controlling for worker's observed characteristics such as education, work experience, gender, and geographic location, a significant firm size wage effect averaging 15 percent remains. This paper investigates whether the size-wage premium on hog farms persists over time and whether the magnitude is growing or shrinking. The paper pays particular attention to the matching process by which workers are allocated to farms of different size and technology use, and whether the matching process may explain differences in wages across farms. The study relies on four surveys of employees on hog farms collected in 1990, 1995, 2000, and 2005. The survey was conducted across the United States. The data allow us to evaluate how farm size and technology adoption have changed over time and how employee pay has changed in response to these changes. Detailed investigations of these pay differences between small and large hog farms and between farms using few and many technologies show that the differences cannot be explained away by differences in the education, work experience, or geographic location of the farm. Although more educated and experienced workers are more likely to work on larger and more technologically advanced hog farms, the positive relationships between wages and both farm size and technology remain large and statistically significant when differences in observable worker attributes are controlled. Furthermore, these effects are reinforcing in that large hog farms also adopt more technologies, and so the firm size effect persists even after differences in the number of technologies are held constant. The size-wage and technology-wage prema have persisted over time, and we cannot reject the null hypothesis that the premia are constant over the sample period.