Employer Size and the Structure of Wages: A Critical Survey

Abstract

This paper provides a critical survey of the economic literature on the poten- tial effects of employer size on the structure of wages. Two questions are examined both from a theoretical and empirical perspective. Firstly, we investigate why (on aver- age) large employers pay more than small employers. We also examine whether the magnitude of the employer-size wage premium varies across countries and is affected by labour market institutions. Secondly, we focus on the relationship between employer size and the dispersion of wages, both within and between establishments. Particular attention is devoted to empirical results obtained for the Belgian economy. This paper provides a critical survey of the economic literature on the potential effects of employer size on the structure of wages. Two questions are examined both from a theoretical and empirical perspective. Firstly, we investigate why (on average) large employers pay more than small employers. We also examine whether the magnitude of the employer-size wage premium varies across countries and is affected by labour market institutions. Secondly, we focus on the relationship between employer size and the dispersion of wages, both within and between establishments. Particular attention is devoted to empirical results obtained for the Belgian economy.