Managing skill premium through firm structure

Enoch Hill and David Perez-Reyna

No 15626, Documentos CEDE from Universidad de los Andes, Facultad de Economía, CEDE

Abstract: Previous research has consistently demonstrated a positive relation between firm size and skill premium. We decompose this result by type of skilled worker using data from Chilean firms and find that returns in skill premium to size are an order of magnitude larger for owners and managers compared to other types of skilled workers. We interpret this to imply that firm structure is important for understanding the relationship between skill premium and firm size. We propose an original model of firm hierarchy which rationalizes our empirical finding. In our model, more productive firms maximize profits by choosing to employ more levels of management. These managers require a higher average skill level and command a higher average skill premium. Additionally, our model predicts that skill premium is increasing in the ratio of workers to managers, a fact we also observe in the Chilean data.

Keywords: Skill premium; firm structure; human capital (search for similar items in EconPapers)
JEL-codes: D23 J31 L22 (search for similar items in EconPapers)
Pages: 31
Date: 2017-06-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repositorio.uniandes.edu.co/bitstream/handle/1992/8727/dcede2017-38.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:col:000089:015626

Access Statistics for this paper

More papers in Documentos CEDE from Universidad de los Andes, Facultad de Economía, CEDE Contact information at EDIRC.
Bibliographic data for series maintained by Universidad De Los Andes-Cede ().