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Employer size-wage effects: evidence from matched employer-employee survey data in the UK

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This paper employs a random sample of matched employer-employee data from the UK to test seven possible explanations for the positive relationship between employer size and pay. Individual wage equations show a large employer size-wage premium. We then control for a range of establishment-level variables, based on seven hypotheses typically advanced to explain this premium. Each establishment-level factor reduces the wage premium, but a sizeable premium nonetheless remains. In adjudicating on these hypotheses, we find a strong association between the internal labour market and the employer size-wage premium. This finding supports the theory that the employer size-wage effect may be due to the higher costs of turnover or monitoring in larger firms. However, we find contrasting effects for public versus private sector establishments.
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Document Type: Research Article

Affiliations: 1: Teachers College Columbia University 525 W. 120th St New York NY 10027 USA 2: Department of Economics Lingnan University 8 Castle Peak Road Tuen Mun Hong Kong SAR PR China

Publication date: 2004-02-01

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