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Firm size and human capital as determinants of productivity and earnings

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  • Måns Söderbom
  • Francis Teal

Abstract

The evidence that earnings rise with firm size and that human capital affects earnings based on labour market data are two of the most robust empirical findings in economics. In contrast the evidence for scale economies in firm data is very weak. The limited direct evidence of human capital on firm productivity suggests that human capital is indeed productive and that the magnitudes are consistent with the findings based on individual data. The common objection to accepting the role of size and human capital as determinants of either earnings or productivity has been the role of unobserved factors. In this paper we investigate the roles of size and human capital in determining both earnings and productivity using a panel data set of matched labour firm data which allows us to control for such factors. We argue that neither the unobservable quality of labour, nor the unobservable characteristics of the workplace, is the source of the relationship between firm size and earnings, and that this effect can have a rent-sharing interpretation. For our data human capital is of minor importance in explaining either the distribution of earnings or productivity across firms of differing size.

Suggested Citation

  • Måns Söderbom & Francis Teal, 2001. "Firm size and human capital as determinants of productivity and earnings," CSAE Working Paper Series 2001-09, Centre for the Study of African Economies, University of Oxford.
  • Handle: RePEc:csa:wpaper:2001-09
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    File URL: http://www.csae.ox.ac.uk/materials/papers/2001-09text.pdf
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    References listed on IDEAS

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    1. John Van Reenen, 1996. "The Creation and Capture of Rents: Wages and Innovation in a Panel of U. K. Companies," The Quarterly Journal of Economics, Oxford University Press, vol. 111(1), pages 195-226.
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    Cited by:

    1. Engelhardt, Lutz, 2004. "Entrepreneurial business models in the German software industry: Companies, venture capital, and stock market based growth strategies on the Neuer Markt," Discussion Papers, Research Unit: Institutions, States, Markets SP II 2004-04, Social Science Research Center Berlin (WZB).
    2. Nichter, Simeon & Goldmark, Lara, 2009. "Small Firm Growth in Developing Countries," World Development, Elsevier, vol. 37(9), pages 1453-1464, September.
    3. Daniel Chudnovsky & Andrés López & Eugenia Orlicki, 2010. "Inequality: The Argentine Experience," Chapters,in: Global Exchange and Poverty, chapter 8 Edward Elgar Publishing.
    4. Abigail Barr & Pieter Serneels, 2004. "Wages and Reciprocity in the Workplace," CSAE Working Paper Series 2004-18, Centre for the Study of African Economies, University of Oxford.
    5. Wambugu, Anthony, 2002. "Real Wages and Returns to Human Capital in Kenya Manufacturing firms," Working Papers in Economics 75, University of Gothenburg, Department of Economics.
    6. Måns Söderbom & Francis Teal, 2001. "Are African manufacturing firms really inefficient? Evidence from firm-level panel data," CSAE Working Paper Series 2001-14, Centre for the Study of African Economies, University of Oxford.
    7. Bulan, Laarni & Sanyal, Paroma & Yan, Zhipeng, 2010. "A few bad apples: An analysis of CEO performance pay and firm productivity," Journal of Economics and Business, Elsevier, vol. 62(4), pages 273-306, July.
    8. Fox, Louise & Oviedo, Ana Maria, 2008. "Are skills rewarded in Sub-Saharan Africa ? determinants of wages and productivity in the manufacturing sector," Policy Research Working Paper Series 4688, The World Bank.
    9. Serneels, Pieter, 2008. "Human capital revisited: The role of experience and education when controlling for performance and cognitive skills," Labour Economics, Elsevier, vol. 15(6), pages 1143-1161, December.
    10. World Bank, 2009. "Ghana - Job Creation and Skills Development : Main Report," World Bank Other Operational Studies 3072, The World Bank.

    More about this item

    Keywords

    African manufacturing; productivity; earnings; human capital; firm size; rent sharing; efficiency wages;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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