The Role of Establishment Size in the City-Size Earnings Premium

Porcher, Charly; Rubinton, Hannah; Santamaría, Clara

doi:10.20955/wp.2020.029

Working Paper Revision

The Role of Establishment Size in the City-Size Earnings Premium

Abstract: Both large establishments and large cities are known to offer workers an earnings premium. In this paper, we show that these two premia are closely linked by documenting a new fact: when workers move to a large city, they also move to larger establishments. We then ask how much of the city-size earnings premium can be attributed to transitions to larger and better-paying establishments. Using administrative data from Spain, we find that 38 percent of the city-size earnings premium can be explained by establishment-size composition. Most of the gains from the transition to larger establishments realize in the short-term upon moving to the large city. Establishment size explains 29 percent of the short-term gains, but only 5 percent of the medium-term gains that accrue as workers gain experience in the large city. The small contribution to the medium-term gains is due to two facts: first, within large cities workers transition to large establishments only slightly faster than in smaller cities; second, the relationship between earnings and establishment size is weaker in large cities.

Keywords: City-size wage premium; Establishment-size wage premium;

JEL Classification: R12;

https://doi.org/10.20955/wp.2020.029

Status: Published in Journal of Urban Economics