The paper examines the labour quality explanation of the employer size?wage gap: larger firms pay higher wages because they employ more skilled workers. Most previous studies control for unobserved skills of workers using longitudinal data and the fixed effects estimator thus relying on a...

There are two findings that are conspicuous in almost all studies of individual wage determination. First, standard cross-section wage equations rarely account for more than half of the total variance in earnings between individuals. Second, there are large and persistent inter-industry wage...