Who
Gets Good Jobs? The Hiring Decisions
and Compensation Structures of Large Firms
Luojia
Hu
Abstract
Most research in labor economics concerning firm size
has focused on the size-wage puzzle, but little attention has been
paid to the differences in hiring practices and wage structures
between large and small firms. In this paper, I use data from the
Benefits Supplement to the Current Population Survey (CPS) to demonstrate
that large firms hire more younger workers than small firms, especially
for white-collar occupations. This finding is implied by the firm-specific
human capital theory since large firms invest more in workers than
small firms do and because those investments are fixed costs. I
then present a simple model of firm cost minimization within an
employee search framework, which is consistent with large firms&
propensity to hire younger workers, and has additional testable
implications regarding large firms& compensation structures.
First, since young workers are more valuable to large firms than
to small firms, large firms offer higher starting wages to attract
them. This implies flatter starting wage-age profiles among the
new hires in large firms. Second, since large firms invest more
in workers, they continue to pay higher wages to retain the trained
employees. This implies steeper wage-tenure profiles in large firms.
Both predictions are borne out by the CPS data. Most strikingly,
for the newly hired white-collar workers, not only are the starting
wage-age profiles flatter in large firms, but also the size-wage
premium disappears for workers hired at age 35 or older. Some additional
implications of the model along dimensions other than firm size
also are tested.
Luojia Hu, Department
of Economics, Northwestern University
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