Bigger Businesses Pay Higher Wages
Jason Richwine /
Looking for a raise during these tough economic times? You may want to try working for a larger company. Though largely unpublicized, the fact that wages rise with firm size is a well established result in labor economics. We might call this the “Big Business wage premium,” which exists even when we compare workers with the same observable skills and experience.
Imagine that you work at a tiny business that employs fewer than 10 people. Now imagine a veritable clone of yourself—someone of the same race, gender, and marital status as you, working in the same occupation, living in the same area, and having the same education and experience. If your clone works at a business that employs between 10 and 24 people, then the clone likely makes $1.03 for every dollar that you earn. As we place your clone in larger and larger companies, the premium continues to grow. Businesses with over 1000 workers will pay your clone $1.16 for each dollar of your salary.
The table below summarizes the impact of the Big Business wage premium. The second column takes a person making $50,000 annually at a small business and shows how the salary would rise if he moved to a bigger company. The third column shows the corresponding percentage gain in salary. A person who makes $50,000 at a small company has a counterpart with the same skill profile making $58,090 at a large company, an increase of 16.2 percent. (more…)