The formal sector wage premium and firm size

The formal sector wage premium and firm size

by Eliane Badaoui

Book 3145 of Discussion Paper --

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"We show theoretically that when larger firms pay higher wages and are more likely to be caught defaulting on labour taxes, then large high-wage firms will be in the formal sector 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 the South African labour force survey we illustrate that firm size is indeed the key variable determining whether a formal sector premium exists"--Forschungsinstitut zur Zukunft der Arbeit web site.

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