the Ability to Pay in the Public Sector

There is much evidence that private sector employers categorized as ‘‘large’ ’ pay more than employers categorized as “small, ” even when their union status is the same (Brown and Medoff 1986). There is, however, much less information that can help us answer two key ques-tions about this wage differential: How can larger private sector em-ployers pay more and still survive? Why do they do so‘? In this paper we move from the private sector to the public sector, while still focusing on the employer size-wage differential. Published tabulations of Census of Governments data ( U S. Census Bureau 1979b) suggest that larger government units do pay substantially higher wages than smaller ones. For example, average full-time earnings are 13 per-cent higher for special districts with more than 100 employees than for districts with less than 10 workers. A similar relationship holds when one divides the districts according to function and for other types of local government. Moreover, the size-wage relationship is close t