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The Role of Unobserved Heterogeneity and On-the-Job Training in the Employer Size-Wage Effect: Evidence from Australia

  • Lixin Cai

    ()

    (The Institute of Applied Economic and Social Research, University of Melbourne)

  • C. Jeffrey Waddoups

    (Department of Economics, University of Nevada, Las Vegas)

The positive relationship between employer size and wages is a ubiquitous feature of advanced industrialized economies. The purpose of the present study is to clarify the nature of the employer size-wage effect in Australia by determining the extent to which it can be explained by observed and unobserved quality differences, including difference in on-the-job training. The empirical results are based on analysis of the Household Income and Labour Dynamics in Australia (HILDA) Survey, which is a relatively new nationally representative panel data set focused on family income, employment, and well-being. Our findings indicate that for males, quality adjusted employer size-wage effects are quite small and mostly driven by lower wages for workers in the smallest firms (fewer than twenty workers). For females, size-wage effects disappear when unobserved quality differences are accounted for. We also find that accounting for differences in the incidence of job training has no effect on the structure of wage differences by employer size.

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File URL: http://web.unlv.edu/projects/RePEc/pdf/0915.pdf
File Function: First version, 2009
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Paper provided by University of Nevada, Las Vegas , Department of Economics in its series Working Papers with number 0915.

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Length: 33 pages
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:nlv:wpaper:0915
Contact details of provider: Phone: (702) 895-3776
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Web page: http://business.unlv.edu/econ/

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  1. Miller, Paul & Mulvey, Charles, 1996. "Unions, Firm Size and Wages," The Economic Record, The Economic Society of Australia, vol. 72(217), pages 138-53, June.
  2. Main, Brian G M & Reilly, Barry, 1993. "The Employer Size-Wage Gap: Evidence for Britain," Economica, London School of Economics and Political Science, vol. 60(238), pages 125-42, May.
  3. John M. Abowd & Francis Kramarz & David N. Margolis, 1994. "High-Wage Workers and High-Wage Firms," CIRANO Working Papers 94s-23, CIRANO.
  4. Evans, David S. & Leighton, Linda S., 1987. "Why do Smaller Firms Pay Less?," Working Papers 87-19, C.V. Starr Center for Applied Economics, New York University.
  5. 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.
  6. Ana Ferrer & Stephanie Lluis, . "Should Workers Care About Firm Size?," Working Papers 0204, Human Resources and Labor Studies, University of Minnesota (Twin Cities Campus).
  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 433-55, July.
  8. Josef Zweimuller & Rudolf Winter-Ebmer, 1999. "Firm-Size Wage Differentials in Switzerland: Evidence from Job-Changers," American Economic Review, American Economic Association, vol. 89(2), pages 89-93, May.
  9. Dan A. Black & Brett J. Noel & Zheng Wang, 1999. "On-the-Job Training, Establishment Size, and Firm Size: Evidence for Economies of Scale in the Production of Human Capital," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 82-100, July.
  10. Christoph Schmidt & Klaus Zimmerman, 1990. "Work Characteristics, Firm Size and Wages," Working Papers 644, Princeton University, Department of Economics, Industrial Relations Section..
  11. Oi, Walter Y, 1983. "Heterogeneous Firms and the Organization of Production," Economic Inquiry, Western Economic Association International, vol. 21(2), pages 147-71, April.
  12. C. Jeffrey Waddoups, 2007. "Employer Size-wage Effects in Australia," LABOUR, CEIS, vol. 21(4-5), pages 809-835, December.
  13. Barron, John M & Black, Dan A & Loewenstein, Mark A, 1987. "Employer Size: The Implications for Search, Training, Capital Investment, Starting Wages, and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 5(1), pages 76-89, January.
  14. Barron, John M & Black, Dan A & Loewenstein, Mark A, 1989. "Job Matching and On-the-Job Training," Journal of Labor Economics, University of Chicago Press, vol. 7(1), pages 1-19, January.
  15. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  16. Dale Belman & David I. Levine, 2004. "Size, Skill and Sorting," LABOUR, CEIS, vol. 18(4), pages 515-561, December.
  17. Albaek, Karsten & Arai, Mahmood & Asplund, Rita, 1995. "Employer Size-Effectsin the Nordic Countries," Discussion Papers 532, The Research Institute of the Finnish Economy.
  18. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-59, October.
  19. Alison L. Booth & Mark L. Bryan, 2005. "Testing Some Predictions of Human Capital Theory: New Training Evidence from Britain," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 391-394, May.
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