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The Firm Size Effect: fact or artifact?

Author

Listed:
  • Ekberg, John

    () (Medlingsinstitutet)

  • Salabasis, Mickael

    () (UC AB)

Abstract

The size-wage effect is well documented in the empirical literature, and typical attempts of explanation center on the supply side, using variations of the human capital approach, perhaps combined with institutional theories. With conclusive evidence of its source yet to emerge, an alternative approach with interesting prospects attempts to give the demand side a more active part to play. Interpreting jobs as tasks, potentially firm-specific and organized in hierarchies, the optimal position for an individual can be assumed to be a function of ability and human capital, while the wage for a specific task is primarily decided by its value for the firm. Then, the role played by human capital changes, its effect being only indirect on wages, and the issue of how the existence of task structures, or career ladders, affect wages becomes paramount. Using data with detailed information about job content and structure, evidence of a natural positive correlation between size and structure is found. Combined with the reasonable assumption of a positive correlation between the position of tasks in the hierarchy and the wage, a size effect may very well come out positive and significant if we fail to control for it, making it an artifact of the data rather than an accurate description of the world.

Suggested Citation

  • Ekberg, John & Salabasis, Mickael, 2001. "The Firm Size Effect: fact or artifact?," SSE/EFI Working Paper Series in Economics and Finance 462, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0462
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    Cited by:

    1. Naderi, A. & Mace, J., 2003. "Education and earnings: a multilevel analysis: A case study of the manufacturing sector in Iran," Economics of Education Review, Elsevier, vol. 22(2), pages 143-156, April.
    2. Thierry Lallemand & Robert Plasman & François Rycx, 2007. "The establishment-size wage premium: evidence from European countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 34(5), pages 427-451, December.
    3. Jeremy T. Fox, 2009. "Firm-Size Wage Gaps, Job Responsibility, and Hierarchical Matching," Journal of Labor Economics, University of Chicago Press, vol. 27(1), pages 83-126, January.

    More about this item

    Keywords

    wages; plant size; occupational hierarchies;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations

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