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ABSTRACT
This paper examines the issue of the establishment size-wage effect. It analyzes a cross-section for the year 1979, with information on 607 individuals and the 60 private sector establishments where they work. It discusses four theories of the establishment size-wage effect and uses empirical proxies to test them. It shows that when a dummy variable on computer access in the establishment is introduced as a regressor, the establishment size variable is an insignificant regressor. This result andother evidence supports the contention that the establishment size coefficient captures the effect of unobserved human capital accumulation.
We present new tests of three theories of the labor market: intertemporal substitution, hours restrictions, and implicit contracts. The intertemporal substitution test we implement is an exclusion test robust to many specification errors and we consistently reject this model. We model hours restrictions as part of an endogenous switching model. We compare the implicit probit equation to an unrestricted probit equation for unemployment and reject the hours restriction model. For the implicit contracts model, we estimate nonseparable within-period labor-supply and consumption equations. We test a cross-equation restriction of the model and cannot reject the implicit contracts model. (JEL E30, J22, J60)
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