Hierarchy and the Employer Size Effect on Wages: Evidence from Britain

Abstract

We argue that employer size wage effects reflect the role of hierarchy. Using matched employer–employee data and individual longitudinal data, we show that the employer size wage effects for supervisors are approximately twice those for non‐supervisors. We confirm sorting on supervisor ability, and present evidence of additional match‐specific wage returns for supervisors. We demonstrate that spans of control influence the establishment size return for supervisors but not for non‐supervisors. Talented supervisors sort into larger establishments taking a talent premium with them, but they also receive a match‐specific return on that talent only when matched with a larger establishment.

The Role of the Workplace in Ethnic Wage Differentials

“…The main purpose of this analysis, however, is to explore the extent to which workplace segregation by ethnicity may be allocating non-whites into high or low wage workplaces. The positive relationship between the share of non-white employees and workplace size is suggestive of some degree of allocation into high-wage workplaces (there is an extensive literature which identifies a large-firm wage premium: see Troske, 1999 andGreen et al, 2021). However, we investigate this more formally by first regressing each employee's log hourly wage on a set of employee characteristics, comprising: ethnicity, gender, age, age-squared, educational level and occupation.…”

The role of the workplace in ethnic wage differentials

“…The positive relationship between the share of non‐White employees and workplace size is suggestive of some degree of allocation into high‐wage workplaces (there is an extensive literature that identifies a large‐firm wage premium: see Green et al., 2021; Troske, 1999). We investigate the relationship between the share non‐White and workplace‐level wage premia more formally by using the method set out in Subsection 3.2.…”

The UK gender pay gap: Does firm size matter?

“…The latter would include differences in ability, personality or innate preferences for firm size/amenities, an important determinant of sorting of employees into firms of different size (among others, see Green et al . 2021).…”

“…Our most comprehensive specification, which Green et al . (2021) consider as ‘ideal’ in identifying the firm‐size premium, therefore includes both individual and firm fixed effects, and accounts for unobserved worker and firm heterogeneity, which might otherwise drive the GPG differential by firm size 27 , 28 . This specification, which forms our preferred estimate of the adjusted GPG, is set out as follows: $$$$ \ln {W}_{ijt}={\alpha}_i+\delta \ln {S}_{ijt}+\gamma {F}_i\ln {S}_{ijt}+{X}_{ijt}\beta +{\omega}_j+{\theta}_t+{\varepsilon}_{ijt}.$$…”