New Firms, Wages, and the Knowledge Economy

Abstract

Much economic research has been devoted to analyzing the gap in earnings between large and small firms. The identification of this disparity in wages between employers of different sizes dates back to at least Moore (1911), who was one of the first economists to empirically document its existence. Since Moore’s original research, empirical studies have continued to reveal in convincing fashion that large firms pay higher wages than their smaller counterparts. Consequently, the occurrence of inter-firm size wage differentials has been vaunted to the status of a well-known and accepted stylized fact of economic literacy. In fact, this phenomenon has been so accepted, that much attention is devoted to explaining its existence theoretically and empirically. The result, however, is still somewhat puzzling since there is “little consensus” why firm size should be an explanatory factor in determining a worker’s wage (Winter-Ebmer and Zweimüller 1999, 89).