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Establishment Size and the Dispersion of Wages: Evidence from European Countries

  • Lallemand, Thierry


    (Free University of Brussels)

  • Rycx, Francois


    (Free University of Brussels)

We investigate how the wage distribution differs among small and large establishments in four European countries. Findings show that within-establishment wage dispersion rises with size because large employers have a more diverse workforce. They also suggest that screening and monitoring costs imply a lower sensitivity of wages to ability in larger establishments. Smaller establishments are found to rely more on incentive-based pay mechanisms, particularly in countries with a low trade union coverage rate. Further results indicate that between-establishment wage dispersion decreases with employer size because smaller establishments are technologically more diversified and hence exhibit greater diversity in average workforce skills.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1778.

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Length: 29 pages
Date of creation: Sep 2005
Date of revision:
Publication status: published in: Applied Economics Quarterly, 2006, 52 (4), 309-336
Handle: RePEc:iza:izadps:dp1778
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