The formal sector wage premium and firm size |
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| Authors: | Eliane El Badaoui Eric Strobl Frank Walsh |
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| Institution: | aTHEMA-Université de Cergy-Pontoise, 33 Boulevard du Port, 95011 Cergy-Pontoise Cedex, France;bEcole Polytechnique Paris, 91128 Palaiseau Cedex, France;cUniversity College Dublin, Belfield, Dublin 4, Ireland |
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| 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. |
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| Keywords: | Formal sector wage premium Firm size |
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