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The Formal Sector Wage Premium and Firm SizeEliane BadaouiUniversity of Cergy-Pontoise - THEMA Eric StroblEcole Polytechnique, Paris - Department of Economic Sciences; Institute for the Study of Labor (IZA) Frank WalshNational University of Ireland - University College Dublin November 2007 IZA Discussion Paper No. 3145 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.
Number of Pages in PDF File: 31 Keywords: informal sector, wage premium, firm size JEL Classification: J42 working papers seriesDate posted: November 26, 2007Suggested CitationContact Information
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