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Employer Size and Dual Labor Markets

  • James B. Rebitzer
  • Michael D. Robinson

Recently developed effort regulation models argue that labor markets are segmented because of differences in the technology of supervision across firms. primary jobs pay above market clearing wages because these jobs are difficult to monitor. Secondary jobs, in contrast, pose no monitoring difficulties and therefore pay a market clearing wage. If, as the literature suggests, increases in employer size make supervision more difficult, we should observe that wages increase with employer size in primary jobs but not in secondary jobs. We test this hypothesis using a switching regression model. We find evidence of an employer size wage effect in both primary and secondary labor markets. However, consistent with the prediction of effort control models, the size effect on wages is considerably larger in primary than secondary jobs.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3587.

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Date of creation: Jan 1991
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Publication status: published as Review of Economics and Statistics, Vol. 73, No. 4, (November 1991), p. 710-715.
Handle: RePEc:nbr:nberwo:3587
Note: LS
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  1. William T. Dickens & Kevin Lang, 1986. "Labor Market Segmentation and the Union Wage Premium," NBER Working Papers 1883, National Bureau of Economic Research, Inc.
  2. Calvo, Guillermo A & Wellisz, Stanislaw, 1978. "Supervision, Loss of Control, and the Optimum Size of the Firm," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 943-52, October.
  3. Cain, Glen G, 1976. "The Challenge of Segmented Labor Market Theories to Orthodox Theory: A Survey," Journal of Economic Literature, American Economic Association, vol. 14(4), pages 1215-57, December.
  4. Alan B. Krueger, 1991. "The evolution of unjust-dismissal legislation in the United States," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 44(4), pages 644-660, July.
  5. Mellow, Wesley, 1982. "Employer Size and Wages," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 495-501, August.
  6. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75, pages 123.
  7. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  8. Rebitzer, James B & Taylor, Lowell J, 1991. "A Model of Dual Labor Markets When Product Demand Is Uncertain," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1373-83, November.
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