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The productivity-wage premium: does size still matter in a service economy?

Berlingieri, Giuseppe, Calligaris, Sara and Criscuolo, Chiara (2018) The productivity-wage premium: does size still matter in a service economy? CEP Discussion Papers (CEPDP1557). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

Ever since Moore (1911) a large empirical and theoretical literature has established the existence of a firm size-wage premium. At the same time, a second regularity in empirical work, linking size and productivity, has inspired a vast literature in multiple fields. However, the majority of the existing evidence is based on manufacturing data only. With manufacturing nowadays accounting for a very small share of the economy in many countries, whether productivity, size, and wages are closely linked, and how tight this link is across sectors, is still an open question. Using a unique dataset that collects micro-aggregated firm-level information on productivity, size, and wages for the entire economy in 17 countries over the 1994-2012 period, this paper unveils a much more subtle picture. First, while in the manufacturing sector both productivity and wages increase monotonically with firm size, the same is not true in the service sector. Second, a tight and positive link between wages and productivity is instead found in both manufacturing and services. The combination of these results suggests that, when looking at data for a much larger share of the economy, the "size-wage premium" becomes more a "productivity-wage premium". Unbundling the relationship between size, wages, and productivity has first-order policy implications for both workers and firms.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2018 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HB Economic Theory
JEL classification: D - Microeconomics > D2 - Production and Organizations
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 11 Jan 2019 10:04
Last Modified: 20 Apr 2019 23:04
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/91678

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