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Employer Size or Skill-Group Size Effect on Wages?


  • Barth, Erling

    () (Institute for Social Research, Oslo)

  • Dale-Olsen, Harald

    () (Institute for Social Research, Oslo)


It turns out that the employer-size effect on individual wages dwindles away once one control for the number of workers of the same skill-group (educational type) as the observed individual within the establishment. The skill-group size effect on wages is substantial. The main results, a dwindling employer size effect and a significant group size effect, remain after controlling for both individual and establishment specific heterogeneity. This observation rejects most of the proposed explanations for the employer-size effect, while it lends considerable support for the notion that there are frictions in the labor market and that each establishment faces an upward sloping supply curve for each type of labor.

Suggested Citation

  • Barth, Erling & Dale-Olsen, Harald, 2005. "Employer Size or Skill-Group Size Effect on Wages?," IZA Discussion Papers 1888, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp1888

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    References listed on IDEAS

    1. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. 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.
    3. Hamermesh, Daniel S & Goldfarb, Robert S, 1970. "Manpower Programs in a Local Labor Market: A Theoretical Note," American Economic Review, American Economic Association, vol. 60(4), pages 706-709, September.
    4. Albaek, Karsten & Arai, Mahmood & Asplund, Rita & Barth, Erling & Strojer Madsen, Erik, 1998. "Measuring wage effects of plant size," Labour Economics, Elsevier, vol. 5(4), pages 425-448, December.
    5. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
    6. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-1059, October.
    7. Green, Francis & Machin, Stephen & Manning, Alan, 1996. "The Employer Size-Wage Effect: Can Dynamic Monopsony Provide an Explanation?," Oxford Economic Papers, Oxford University Press, vol. 48(3), pages 433-455, July.
    8. Alan Manning, 1994. "Labour Markets with Company Wage Policies," CEP Discussion Papers dp0214, Centre for Economic Performance, LSE.
    9. Barth, Erling & Raaum, Oddbjorn & Naylor, Robin, 2000. "Union Wage Effects: Does Membership Matter?," Manchester School, University of Manchester, vol. 68(3), pages 259-275, June.
    10. Mortensen, Dale T., 1987. "Job search and labor market analysis," Handbook of Labor Economics,in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 15, pages 849-919 Elsevier.
    11. Kenneth Burdett & Dale T. Mortensen, 1989. "Equilibrium Wage Differentials and Employer Size," Discussion Papers 860, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    12. Moene, Karl O, 1988. "Unions' Threats and Wage Determination," Economic Journal, Royal Economic Society, vol. 98(391), pages 471-483, June.
    13. Burdett, Kenneth & Vishwanath, Tara, 1988. "Balanced Matching and Labor Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 1048-1065, October.
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    Cited by:

    1. Binnur Balkan & Semih Tumen, 2016. "Firm-Size Wage Gaps along the Formal-Informal Divide: Theory and Evidence," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 55(2), pages 235-266, April.
    2. Jan Kluge & Michael Weber, 2015. "Decomposing the German East-West wage gap," ifo Working Paper Series 205, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. repec:bla:labour:v:31:y:2017:i:2:p:153-173 is not listed on IDEAS
    4. repec:fep:journl:v:28:y:2017:i:1:p:1-9 is not listed on IDEAS
    5. Pehkonen, Jaakko, 2014. "Establishment size and task-specific wages: Evidence from historical contract data," Economics Letters, Elsevier, vol. 124(1), pages 48-50.

    More about this item


    wage differentials; size wage effect;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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