Essays on External Conditions and Wage Setting within Firms

Abstract

Almost fifty years ago, John Dunlop (1957) noted that wages vary extensively between firms for workers in narrowly defined occupations in particular geographic regions and suggested that a variety of factors—product market conditions and social norms among them—may play a role in wage setting, in addition to the supply and demand for different types of labor. Careful work with microdata, in both developed and developing countries, has since provided further evidence for Dunlop’s observation. Some industries pay more than others across occupational categories, controlling for the observed characteristics of workers.1 More recent studies using matched employer-employee data have found a similar result for individual firms (Abowd, Kramarz, and Margolis 1999). Another persistent empirical regularity is that large firms pay more than small ones, even within narrowly defined industries and regions.2