Firm Size, Earnings, and Displacement Risk

Rudolf Winter-Ebmer

Economic Inquiry, 2001, vol. 39, issue 3, 474-86

Abstract: Analogous to the well-documented firm size-wage differential, there also exists a differential in layoff risk according to firm size. Using Austrian data I discuss several reasons for this puzzle, including on-the-job training and workers' heterogeneity. If less stable (and also less able) workers select themselves into small, unstable, and low-paying firms, predicted layoff risk of workers can be used as a proxy for heterogeneity of workers and therefore be included in wage regressions. Doing this, one half of the size earnings premium can be explained. Copyright 2001 by Oxford University Press.

Date: 2001
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