Firm Size, Technical Change And Wages In The Pork Sector, 1990 -2005

Economists have long puzzled over the fact that large firms pay higher wages than small firms, even after controlling for worker’s observed productive characteristics. One possible explanation has been that firm size is correlated with unobserved productive attributes which confound firm size with other productive characteristics. This study investigates the size-wage premium in the context of firms competing within a single market for a relatively homogeneous product: hogs. We pay particular attention to the matching process by which workers are linked 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. We find that there are large wage premia paid to workers on larger farms that persist over time. 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 adoption remain large and statistically significant even after controlling for differences in observable worker attributes and in the observed sorting process of workers across farms.