For Wages, Business Size Matters

by Erik Knoder

February 23, 2023

Most people expect wages to vary by industry; manufacturing jobs generally pay more than jobs in leisure and hospitality. (If you didn’t expect that, then you need to read our articles more often.) Wages also vary by the size of firms within an industry, sometimes in surprising ways.

The general trend is for larger firms to pay higher wages than smaller firms. Larger firms often achieve economies of scale that result in higher profits – so they can afford to pay higher wages. But why would they want to? There are many theoretical and practical reasons: large firms may be hiring more productive workers, they may be paying high wages to create barriers to entering the industry for small firms, large firms may have higher hiring costs and therefore have more incentive to reduce their turnover, or they may have a unionized workforce that has bargained for higher wages.

Wages for different industries and size of firms is given in the table included. The data are from firms in Northwest Oregon – Benton, Clatsop, Columbia, Lincoln, and Tillamook counties.

Most industries do follow the trend of larger firms paying higher wages, and the differences can be dramatic. Large manufacturers pay more than double, about $53,000, more per year than small ones. In the health care and social assistance industry, large firms pay more than $43,000 above the pay at small firms.
Table showing 2021 annual average wages in Northwest Oregon

But some industries break the rule of larger firms paying more. Rule-breaking industries are administrative, support, waste management and remediation services; arts, entertainment, and recreation; and transportation and warehousing. Sometimes the wage distribution for these industries that are exceptions to the rule can be explained by having a particular mix of occupations or work arrangements that varies by firm size. For example, the administrative, support, waste management and remediation services industry has a broad mix of small businesses, but the mid-sized businesses are dominated by temporary help services. Temporary workers typically are paid less than permanent employees.

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