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Cambridge Journal of Economics Advance Access published online on September 15, 2009
Cambridge Journal of Economics, doi:10.1093/cje/bep046
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© The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Wage–size relation and the structure of work-force composition in Italian manufacturing firms

Giulio Bottazzi and Marco Grazzi*

* Laboratory of Economics and Management, Scuola Superiore Sant'Anna, Pisa

Address for correspondence: Giulio Bottazzi, Scuola Superiore Sant'Anna, P.zza Martiri della Libertà 33, 56127 Pisa, Italy; e-mail: bottazzi{at}sssup.it.

In this paper we study the impact of firms’ productivity and scale of activity on the cost of labour for Italian manufacturing firms, investigating how the work-force composition affects the total expenditures for wages. Our analysis reveals that once productivity differences among firms are accounted for, size still retains a positive effect on cost of labour. We show that the source of this phenomenon is the relatively higher proportion of non-production workers in bigger firms, which results in a cost of labour for white collar workers that increases with increasing firm size.

Key Words: Wage–size relation • Work force composition • Hierarchy theory of the firm • Labour productivity

JEL classifications: D21, J31, L11, L60

Manuscript received November 9, 2007; final version received September 30, 2008.


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