Establishment size and the dispersion of wages: evidence from European Countries

We investigate how the wage distribution differs among small and large establishments in four European countries (i.e. Belgium, Ireland, Italy and Spain). To do so, we implement the Juhn, Murphy and Pierce (1993) decomposition of wages following the methodology suggested by Lemieux (2002). Findings show that within-establishment wage dispersion rises with size because large employers have a more diverse workforce. In addition they also suggest that smaller establishments more closely link pay to performance. Further results indicate that between-establishment wage dispersion decreases with employer size because smaller establishments are technologically more diversified and hence exhibit greater diversity in average workforce skills.