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Endogenous Choice of Firm Size and the Sturcture of Wages: A Comparison of Canada and the United States

  • Stephanie Lluis

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This paper compares the Canadian and U.S. wage structures by firm size. The objective is to test for the possibility of different returns to education and experience as well as examine the role played by unmeasured skills in driving the allocation of workers across firms of different sizes. Those effects may arise if large and small firms have different working environments in which the various dimensions of workers' skills (measured and unmeasured) may not be identically productive. The analysis is performed separately for the samples of unionized and non- unionized workers in order to isolate any effects of unions on the size- wage structure. The results show evidence of non-random selection of workers into firms of different sizes for both countries in both sectors. In the non-unionized sector, the selection is found to be strongly negative in large firms in both countries and positive in smaller (strongly for the U.S.). This result implies that workers in large firms are of lower quality in terms of unmeasured aspects of skills and equivalently that large firms do not seem to reward unmeasured skills, and the contrary for small firms. In Canada, although unions are associated with the compressed wage- educational differentials relative to non-unionized employers, the wage- educational differentials are more pronounced in smaller unionized employers. Moreover, similar selection patterns as those in the non- unionized sector are found.

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Paper provided by Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus) in its series Working Papers with number 0203.

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Handle: RePEc:hrr:papers:0203
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  1. Idson, Todd L & Feaster, Daniel J, 1990. "A Selectivity Model of Employer-Size Wage Differentials," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages 99-122, January.
  2. Lemieux, Thomas, 1998. "Estimating the Effects of Unions on Wage Inequality in a Panel Data Model with Comparative Advantage and Nonrandom Selection," Journal of Labor Economics, University of Chicago Press, vol. 16(2), pages 261-91, April.
  3. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  4. Richard B. Freeman, 1978. "Unionism and the Dispersion of Wages," NBER Working Papers 0248, National Bureau of Economic Research, Inc.
  5. Charles Brown & James L. Medoff, 1989. "The Employer Size-Wage Effect," NBER Working Papers 2870, National Bureau of Economic Research, Inc.
  6. Rene Morissette, 1993. "Canadian Jobs and Firm Size: Do Smaller Firms Pay Less?," Canadian Journal of Economics, Canadian Economics Association, vol. 26(1), pages 159-74, February.
  7. Robert Gibbons & Lawrence F. Katz, 1989. "Does Unmeasured Ability Explain Inter-Industry Wage Differentials?," NBER Working Papers 3182, National Bureau of Economic Research, Inc.
  8. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214 Elsevier.
  9. Garen, John E, 1985. "Worker Heterogeneity, Job Screening, and Firm Size," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 715-39, August.
  10. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
  11. William T. Dickens & Lawrence F. Katz, 1986. "Interindustry Wage Differences and Industry Characteristics," NBER Working Papers 2014, National Bureau of Economic Research, Inc.
  12. Kevin T. Reilly, 1995. "Human Capital and Information: The Employer Size-Wage Effect," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 1-18.
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