Firms' Main Market, Human Capital and Wages

Recent international trade literature emphasizes two features in characterizing the current patterns of trade: efficiency heterogeneity at the firm level and quality differentiation. This paper explores human capital and wage differences across firms in that context. We build a partial equilibrium model predicting that firms selling in more-remote markets employ higher human capital and pay higher wages to employees within each education group. The channel linking these variables is firms’ endogenous choice of quality. Predictions are tested using Spanish employer-employee matched data that classify firms according to four main destination markets: local, national, European Union, and rest of the World. Employees’ average education is increasing in the remoteness of firm’s main output market. Market–destination wage premia are large, increasing in the remoteness of the market, and increasing in individual education. These results suggest that increasing globalization may play a significant role in raising wage inequality within and across education groups

Managerial accountability for payroll expense and firm-size wage effects

We argue that job performance appraisal is an agency problem between a manager and his employees featuring asymmetric transfer values: Ratings given by the manager are money equivalent for the employees but only partially so for the manager. The asymmetry assumption is based on evidence that managers are not held fully accountable for payroll expense incurred, which, we argue, stems from the misalignment of managerial compensation with the profits of the firm. Other evidence also shows that the problem of managerial unaccountability is more aggravated in larger firms. In this paper, we develop a nested agency model of economic organization of a firm with unaccountable managers, which in equilibrium obtains the firm-size wage effects the large-firm wage premium and inverse relationship between firm size and wage dispersion. We also relate and explain the compression of ratings phenomenon from literature on organizational psychology