Firm-size wage-gaps and hierarchy: Evidence from Canada

Abstract

I investigate the role of hierarchy in explaining wage differential between Canadian large and small firms. I use the confidential-use files of the Labour Force Survey (LFS) from 2016 to 2022 and exploit the mini-panels form to control for time-invariant unobserved heterogeneity. The results show that the Canadian employer size wage effects for managers are approximately twice those for non-managers which is consistent with the results of prior studies for other countries. Managers who move from a small to a large firm have earnings increase of 20%, twice the estimated size-wage differential of non-managers (11%). The results also demonstrate that low-skill workers moving from a small to a large firm have earnings increase of 5.3% which is significantly lower than high-skill workers (14.1%). Those results support the role of the hierarchy in explaining an important part of the size-wage effect for Canadian workers.