An Empirical Study on Wage Differentials and Firm Size in Taiwan

Abstract

Using Taiwan`s Manpower Utilization Survey data for 1996, this paper adopts a two-stage estimation method to examine the wage differentials among firms of different sizes. First, an ordered probit model is used to estimate the self-selection process between heterogeneous workers and firms. Second, the wage equations for firms of different sizes are estimated by incorporating the possible selection bias obtained in the first stage. Estimation results show the existence of significant selection bias, which implies that more able workers choose to work at large firms and less able workers at small firms. This type selection bias will reduce the wage differentials. According to the decomposition analysis, price differential effects outweigh endowment differential effects. The main firm-size-related wage differentials are generated by job attributes and higher rewards paid by large firms to workers.