The Formal Sector Wage Premium and Firm Size

We show theoretically that when larger firms pay higher wages and are more likely to be caught defaulting on labour taxes, then large high-wage firms will be in the formal sector 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 the South African labour force survey we illustrate that firm size is indeed the key variable determining whether a formal sector premium exists.

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Year of publication:	2007-11
Authors:	Strobl, Eric Albert ; Walsh, Frank ; Badaoui, Eliane
Institutions:	Institute for the Study of Labor (IZA)
Subject:	informal sector \| wage premium \| firm size

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Extent:	application/pdf
Series:	IZA Discussion Papers.
Type of publication:	Book / Working Paper
Notes:	Number 3145 31 pages
Classification:	J42 - Monopsony; Segmented Labor Markets
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005247687