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The Formal Sector Wage Premium and Firm Size

Author

Listed:
  • Eliane El Badaoui

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Eric Strobl
  • Frank Walsh

Abstract

We show theoretically that when larger firms pay higher wages and are more likely to be caught defaulting on labor taxes, then large-high wage firms will be in the formal and small-low wage firms will be in the informal sector. The formal sector wage premium is thus just a firm size wage differential. Using data from Ecuador we illustrate that firm size is indeed the key variable determining whether a formal sector premium exists.

Suggested Citation

  • Eliane El Badaoui & Eric Strobl & Frank Walsh, 2010. "The Formal Sector Wage Premium and Firm Size," Post-Print hal-02124906, HAL.
    • Handle: RePEc:hal:journl:hal-02124906
    DOI: 10.1016/j.jdeveco.2009.03.007
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    Keywords

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    JEL classification:

    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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