Establishment Size and Job Tenure

A central hypothesis of the theory of labor market segmentation is that large establishments tend to establish circumstances of employment which foster employment stability. According to this view, large employers stabilize their labor relations by instituting job ladders, grievance procedures, and seniority provisions governing pay, promotion, layoffs, and recalls (see Edwards, 1979; Gordon et al., 1982). These structures, often referred to as internal labor markets, are understood to be key institutional underpinnings of labor market segmentation (see Doeringer and Piore, 1971). This paper tests the supposed relationship between large employers and employment stability by focusing on the effect of plant size and firm size on job tenure. Previous econometric studies of the determinants of job tenure have looked closely at such factors as unionization, hourly earnings, and fringe benefits, but they have ignored the effect of the size of the establishment (Freeman, 1980a,b; Freeman and Medoff, 1984; Leigh, 1970; Merrilees, 1981). Recent studies of individual quit decisions and turnover experience have also overlooked employer size (e.g., Steinberg, 1975; Blau and Kahn, 1981, 1983; Mitchell, 1982; Schiller and Weiss, 1979)