The Productivity-Wage Premium: Does Size Still Matter in a Service Economy?

Abstract

The literature has established two robust stylized facts: (i) the existence of a firm size-wage premium and (ii) a positive relationship between firm size and productivity. However, the existing evidence is mainly based on manufacturing, which nowadays accounts for a small share of the economy. Using a unique micro-aggregated dataset covering 17 countries over 1994-2012, this paper compares these relationships across sectors. While the size-wage and size-productivity premia are significantly weaker in market services compared to manufacturing, the link between wages and productivity is stronger. In a service economy the stylized fact is a “productivity-wage premium” rather than a “size-wage premium.”