Centre for Vocational Education Research LSE RSS Email Facebook Twitter


CEP discussion paper
The productivity-wage premium: does size still matter in a service economy?
Giuseppe Berlingieri, Sara Calligaris and Chiara Criscuolo July 2018
Paper No' CEPDP1557:
Full Paper (pdf)

JEL Classification: E2; D2; J3

Tags: productivity; size-premium; wages

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.

'The Productivity-Wage Premium: Does Size Still Matter in a Service Economy?', Giuseppe Berlingieri, Sara Calligaris and Chiara Criscuolo, American Economic Association Papers and Proceedings, Volume 2018, May 2018.