How Does Firm Size Determine the Distribution of Wages and Quality of a Job?

From the Perspective of a Dual Labor Market Hypothesis

Abstract

The aim of this study was to investigate the determination structure for job quality（routine task intensity）and the linkage between job quality and wages in Japan. The dual labor market hypothesis suggests differences in job quality and wage level between the primary and secondary sectors. However, the relevant literature does not clarify two issues. The first is whether firm size determines job quality in the dual labor market. The other is whether firm size creates excessive wages that cannot be cleared by the market when controlling for job quality. In this study, these two issues were analyzed from the point of view of the efficiency wage theory, employing the Programme for the International Assessment of Adult Competencies（PIAAC）.

The results of the empirical analysis indicate the following. First, except for the branch dummy variable, firm-size variables did not determine job quality. Rather, job quality was dependent on individual employee variables, occupation, numeracy skills, and the type of labor contract. Second, even when controlling for individual employee variables, firm-size variables were found to independently raise wage levels. From these findings, firm size seems to be an indicator of the efficiency wage theory; along with the type of labor contract, it is a significant factor, in the dual labor market.