CANADIAN JOBS AND FIRM SIZE - DO SMALLER FIRMS PAY LESS

Even after controlling for observable workers' characteristics and for occupation and industry-specific effects, a substantial wage differential remains between large and small firms. What underlies the remaining wage differential is unclear. Direct evidence on pension plan coverage and on lay-off rates by firm size is inconsistent with the 'bad working conditions' hypothesis. The union avoidance hypothesis does not seem to explain an important portion of the wage differential. As suggested by efficiency wage models. part of the remaining wage differential may be due to firms' heterogeneity. Similarly, perhaps large firms pay higher wages simply (partly) because they employ workers with more unobserved abilities. Because different explanations of the wage differential may lead to different policy implications, determining the source of the wage-firm size effect is an important question for future research.