
Fact of the Week: Large Canadian Firms Pay Between 11 and 20 Percent Higher Wages Than Small Firms
Source: Ibrahim Bousmah, “Firm-size Wage Gaps and Hierarchy: Evidence from Canada,” (Ottawa, Canada: Innovation, Science and Economic Development Canada, 2023).
Commentary: Economic literature has long revealed that larger firms pay higher wages than smaller firms. However, the size of the wage premium has long been debated. Using data from the Canadian Labor Force Survey from 2016 to 2022, author Ibrahim Bousmah runs a fixed effects model, which controls for worker heterogeneity, or intrinsic talent. The model finds that larger firms pay between 11 and 20 percent more than small firms. The extent of the wage premium is determined by the position of the worker and the skill level. Managers experience, on average, a 20 percent increase in wage when moving from a small to a large firm, compared to just an 11 percent increase for non-managers. Additionally, among non-managers, the size premium differs based on the skill level of employees, with high-skilled workers experiencing a wage premium of 15 percent, compared to just 5.4 percent for low-skilled workers.