Firm‐size wage‐gaps and hierarchy: Evidence from Canada

Abstract

AbstractI investigate the role of hierarchy in explaining wage differential between Canadian large and small firms. I use the confidential‐use files of the Labour Force Survey (LFS) from 2016 to 2022 and exploit the mini‐panels form to control for time‐invariant unobserved heterogeneity. The results show that the Canadian employer size wage effects for managers are approximately twice those for non‐managers which is consistent with the results of prior studies for other countries. Managers who move from a small to a large firm have earnings increase of 20%, twice the estimated size‐wage differential of non‐managers (11%). The results also demonstrate that low‐skill workers moving from a small to a large firm have earnings increase of 5.3% which is significantly lower than high‐skill workers (14.1%). Those results support the role of the hierarchy in explaining an important part of the size‐wage effect for Canadian workers.