Premiums to employment in larger establishments: evidence from Peru

Abstract

Examination of the employer size–wage effect for males in urban Peru suggests the following. Higher wages in larger establishments do not merely compensate for higher worker quality or inferior working conditions. Size differences in the use of rising wage–tenure profiles cannot provide a market-clearing explanation for the employer size–wage effect unless workers are extremely impatient. Thus, larger employers appear to pay premiums. Unionization explains none of the premiums, and minimum wage compliance explains at best a small fraction. Shirking-based efficiency wage explanations for premiums are implausible because Peruvian job security legislation greatly inhibits dismissals in larger establishments. Explanations meriting further research involve the use of high wages to reduce turnover and to improve productivity-enhancing morale.