The Effect of Establishment and Firm Size On Public Wage Differentials

Abstract

Despite large separate literatures, the influence of establishment (plant) and firm size on wages has not been combined with estimation of public wage differentials. We find that doing so alters the estimated public differentials at each level of government. Federal workers in particular appear far less "overpaid " when estab lishment size premiums are included in the wage equations. Indeed, the usually reported federal differential is driven mainly by large wage gaps in the very smallest of establishments. Moreover, when both establishment and firm size premiums are included in the wage equations, little or no evidence emerges that even federal workers are "overpaid. " These results follow from the existence of size premiums among private and local workers but virtually no such premiums among federal or state workers.