Product Market And The Size-wage Differential

Shouyong Shi

No 972, Working Paper from Economics Department, Queen's University

Abstract: This paper constructs a model to show that plants differing in size pay different wages to homogeneous workers. A large plant can use its large capacity to satisify buyers in the product market more readily and so can charge a higher price than a small plant can. As a result, a large plant has a higher sales revenue per worker. To capture this large revenue, large plants post high wages to recruit. The size-wage differential is shown to survive the labor market competition and entry by new plants. Entry and recruiting generate a stationary distribution of plants in the industry that interacts with the size-wage differential. With numerical examples it is shown that an increase in the demand for the industry's product reduces the size-revenue differential and shifts the size distribution in the industry towards small plants. The overall effect is such that the size-wage differential increases when the product demand is initially low and falls when the product demand is already high.

Keywords: Size Distribution of Plants; Size-Wage Differentail; Price/Wage Posting (search for similar items in EconPapers)
JEL-codes: J30 L10 (search for similar items in EconPapers)
Pages: 0 pages
Date: 1998-06
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Citations: View citations in EconPapers (1)

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Journal Article: Product Market and the Size-Wage Differential (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:972

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