Employer Size‐wage Effects in Australia

Abstract

The study examines rising employer size-wage effects in the Australian labour market between 1993 - a period when the effects of decentralization in wage determination was starting to be felt - and 2001 - after the effects of structural changes had become more fully manifested. The findings indicate that most of the increase in the employer size-wage gap between large and medium-sized employers can be explained by changes in returns to characteristics rather than by changes in the skill mix. In addition changes in labour market structure - perhaps associated with decentralization in wage setting - captured by the intercept coefficients caused the employer size-wage gap to increase for males and decrease for females. Copyright 2007 The Author. Journal compilation CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd. 2007.

Working for an entrepreneur: heaven or hell?

“…In his literature review, Wagner (1997) concludes that in small firms, wages are lower, fringe benefits are lower, job security is lower, and opportunities for skill enhancement are worse than in large firms. The hypothesis that smaller firms pay lower wages is confirmed by Troske (1999), Bayard and Troske (1999), and Waddoups (2007). In these studies, the link between firm size and wages is studied empirically, controlling for a number of individual characteristics (for example, age, educational attainment, and tenure), firm characteristics (for example, industry and occupation), and labor market conditions (for example, industry and region).…”

Employers Size Wage Differential: Does Investment in Human Capital Matter?

“…Large firms also impose greater pressure on workers and thus suppress worker's creativity [Lester (1967)]. As a result, the workers in large firms earn a compensating wage differential for less satisfying work [Masters (1969 andWaddoups (2007)].…”

“…The larger firms pay higher wages to compensate workers for bad working conditions; earn abnormal profits because of more market power and share their excess profits with their workers; avoid unionisation, and substitute high monitoring cost with wage premium [Lallemand, et al (2005)]. Moreover, larger firms require large number of workers therefore pay higher wages to attract better quality employees with required qualifications [Waddoups (2007)].…”

“…1 Besides, a number of other studies also reported employer size wage gap in different countries like United State [Brown and Medoff (1989)], Germany [Gerlach and Schmidt (1990); Schmidt and Zimmermann (1991); Gerlach and Huebler (1998)], Great Britain [Main and Reilly (1993)], Japan [Rebick (1993)], Canada [Morissette (1993)], Taiwan [Chuang and Hsu (2004)] and Australia [Waddoups (2007)].…”

Entrepreneurship after displacement

“…Hence, individuals who prefer independence and less bureaucracy and individuals who are less risk averse choose to work in small firms. Furthermore, the lower wages paid by small firms (see, e.g., Wagner 1997 andWaddoups 2007) imply that the employees are more likely to transit to entrepreneurship in order to increase their income. However, even if an alternative to staying in the firm does not exist in cases of business closure, it can be argued that the wage received at the closed business influences the income-related benefits received through unemployment insurance (see section 3.2).…”