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The effects of employment change on payroll per employee : implications from size-wage premia and labor composition

McGowen, Elliot
Master thesis
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URI
http://hdl.handle.net/11250/2560678
Date
2018
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  • Master Thesis [4656]
Abstract
Employer size has been linked to higher wages across industries and occupations by a host of

studies, but a paradox emerges in the relationship between size and payroll per employee.

From multivariate analysis on establishment-level, longitudinal data compiled by the United

States Census Bureau, an unexpected, negative relationship exists not only between payroll

per employee and size but also with growth. The relationship exists whether employment

change is positive or negative, over short and long periods, or measured in fixed or relative

terms. The negative effect on average payroll is strongest for the most dynamic change rates

and weakest for expanding larger establishments hinting at a diminishing effect across size.

The presence of workforce compositional changes within the establishment cannot be directly

observed but is nonetheless the most logical explanation; lower wage employees are the

primary means by which establishments expand and contract. As to the observed shape of the

trends—convergence toward zero and compression of predicted changes in average payroll

across size—the available data provides no clear indication of the components at work.

Plausible factors stem from size-wage differentials, saturation of lower-wage workers, and/or

influences of capital on worker bargaining power. All or none of these may be present but

their presence and magnitude are little more than conjecture. Nonetheless, there is certainty in

that the there is an unquestionable presence of a negative trend across establishment size

categories in payroll per employee during growth and a positive trend during downsizing.

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