Title: The Formal Sector Wage Premium and Firm Size
Abstract: 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.
Publication Year: 2007
Publication Date: 2007-11-01
Language: en
Type: preprint
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Cited By Count: 1
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