Why do employed persons in large firms earn more than employed persons in small firms, even after controlling for observable characteristics? Complementary to previous results, this paper proposes a mechanism that gives an answer to this question.
September 15, 2008 The research findings highlighted in this article suggest that firm-size differences play a significant role in explaining the productivity gap between Canada and the United States. The authors review factors that lead to a positive relationship between productivity and size and then look at Canadian evidence of this relationship at the firm level. They quantify the extent to which the change in Canadian productivity as well as the Canada-U.S. productivity differences can be accounted for by the change in the importance of large firms and identify several factors that play a role in determining average firm size and aggregate productivity.