Who Gets Good Jobs? The Hiring Decisions and Compensation Structures of Large Firms

Most research in labor economics concerning Þrm size has focused on the size-wage puzzle, but little attention has been paid to the differences in hiring practices and wage structures between large and small Þrms. In this paper, I use data from the BeneÞts Supplement to the Current Population Survey (CPS) to demonstrate that large Þrms hire younger workers than small Þrms do, especially for white-collar occupations. This Þnding is implied by the Þrm-speciÞc human capital theory since large Þrms invest more in workers than small Þrms do and because those investments are Þxed costs. I then present a simple model of Þrm cost minimization within an employee search framework, which is consistent with large Þrms’ propensity to hire younger workers, and has additional testable implications regarding large Þrms’ compensation structures. First, since young workers are more valuable to large Þrms than to small Þrms, large Þrms offer higher starting wages to attract them. This implies ßatter starting wage—age proÞles among the new hires in large Þrms. Second, since large Þrms invest more in workers, they continue to pay higher wages to retain the trained employees. This implies steeper wage-tenure proÞles in large Þrms. Both predictions are borne out by the CPS data. Most strikingly, for the newly hired white-collar workers, not only are the starting wage-age proÞles ßatter in large Þrms, but also the size-wage premium disappears for workers hired at age 35 or older. Finally, limited evidence from the BLS Survey of Employer Provided Training 1995 and the CPS suggests that industries that train more also appear to hire younger workers.