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Employer Size and The Wage Structure in U.S. Manufacturing

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  • Steven J. Davis
  • John Haltiwanger

Abstract

We study how the hourly wage structure varies with establishment size and how wage dispersion breaks down into between-plant and within-plant components Our study combines household and establishment data for the U.S. manufacturing sector in 1982. 1) Wage dispersion falls sharply with establishment size for nonproduction workers and mildly for production workers. 2) Size-class differences in wage dispersion often mask even sharper differences in the dispersion of wages generated by observable worker characteristics and in the 'skill prices' on those characteristics. 3) In terms of dispersion in predicted log wages worker heterogeneity tends to rise with establishment size production workers are much more homogenous in the union sector, but only at plants with 1,000 or more workers. 4) Unobserved factors generate sharply greater wage dispersion at smaller establishments. 5) The variance in mean wages across establishments accounts for 59% of total variance. Within-plant wage variance among production workers accounts for a mere 2%. 6) Mean wage differences by size of establishment account for about one-fourth of the total between-plant variance of wages. 7) Between-plant wage dispersion falls sharply with establishment size, entirely accounting for the negative relationship of establishment size to overall wage dispersion. Guided by these and other empirical findings, we assess several hypotheses about the determination of the wage structure.

Suggested Citation

  • Steven J. Davis & John Haltiwanger, 1995. "Employer Size and The Wage Structure in U.S. Manufacturing," NBER Working Papers 5393, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5393
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    References listed on IDEAS

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    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
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    Cited by:

    1. Davis, Steven J. & Henrekson, Magnus, 2005. "Wage-setting institutions as industrial policy," Labour Economics, Elsevier, vol. 12(3), pages 345-377, June.
    2. Harrison, Ann E. & Lin, Justin Yifu & Xu, Lixin Colin, 2014. "Explaining Africa’s (Dis)advantage," World Development, Elsevier, vol. 63(C), pages 59-77.
    3. Pryor, Frederic L., 2001. "Will most of us be working for giant enterprises by 2028?," Journal of Economic Behavior & Organization, Elsevier, vol. 44(4), pages 363-382, April.
    4. Timothy Dunne & John Haltiwanger & Lucia Foster, 2000. "Wage and Productivity Dispersion in U.S. Manufacturing: The Role of Computer Investment," NBER Working Papers 7465, National Bureau of Economic Research, Inc.
    5. Burgess, Simon & Lane, Julia & Stevens, David, 1997. "Jobs, Workers and Changes in Earnings Dispersion," CEPR Discussion Papers 1714, C.E.P.R. Discussion Papers.
    6. Thierry Lallemand & François Rycx, 2007. "Employer Size and the Structure of Wages: A Critical Survey," Reflets et perspectives de la vie économique, De Boeck Université, vol. 0(2), pages 75-87.
    7. Bryce Stephens, 2005. "Wage Dispersion, Compensation Policy and the Role of Firms," Longitudinal Employer-Household Dynamics Technical Papers 2005-04, Center for Economic Studies, U.S. Census Bureau.
    8. repec:eee:labchp:v:3:y:1999:i:pb:p:2629-2710 is not listed on IDEAS
    9. Raquel Fonseca Benito & Natalia Utrero, 2007. "Employment Protection Laws, Barriers to Entrepreneurship, Financial Markets and Firm Size," Working Papers WR-454, RAND Corporation.
    10. Astrid Pennerstorfer & Ulrike Schneider, 2010. "What Determines the (Internal) Wage Distribution in Non-Profit Organizations?," Kyklos, Wiley Blackwell, vol. 63(4), pages 580-596, November.
    11. Simon Burgess & Julia Lane & Kevin McKinney, 2009. "Matching, Reallocation and Changes in Earnings Dispersion," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 91-110, February.

    More about this item

    JEL classification:

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

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