Size, Skill and Sorting

47 Pages Posted: 18 Dec 2004

See all articles by Dale Belman

Dale Belman

Michigan State University

David I. Levine

University of California, Berkeley - Haas School of Business


The rise in inequality between the 1970s and the 1990s and the persistent gap in pay between large and small employers are two of the most robust findings in the study of labor markets. Mainstream economists focus on differences in observable and unobservable skills to explain both the overall rising inequality and the size-wage gap. In this paper we model how increasing returns to skill can affect the size-wage gap both with constant sorting and with size-biased, skill-biased technological change (e.g. if large firms always had access to computers, but small firms gained access to computers with the rise of affordable personal computers). We analyze the Current Population Surveys from 1979 to 1993 to determine whether large and small employers are converging in terms of mean wages (the employer size-wage effect), wage structures by occupation and education, characteristics of employees, and wage structures by region. We find mixed evidence of convergence and no consistent support for any single version of human capital theory.

Suggested Citation

Belman, Dale and Levine, David Ian, Size, Skill and Sorting. Available at SSRN:

Dale Belman (Contact Author)

Michigan State University ( email )

School of Labor and Industrial Relations
4th Floor, South Kedzie Hall
East Lansing, MI 48824-1032
United States
517-353-3905 (Phone)

David Ian Levine

University of California, Berkeley - Haas School of Business ( email )

Berkeley, CA 94720
United States
510-642-1697 (Phone)
510-643-1420 (Fax)

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