New Research: The Relationship Between Firm Size and Employee Wages

Ari Fenn, Assistant Commissioner, Research
November 28, 2023

A view of the Salt Lake City skyline in the foreground, with snowcapped mountains in the background

The factors that determine wages are complex and varied. One such factor linked to wages is the size of the firm that employs an individual. Understanding this relationship is essential for decision-makers, including policymakers and job seekers. This research uses wage and firm data from the Utah Department of Workforce Services (DWS) combined with postsecondary awards and demographic data from the Utah System of Higher Education (USHE) to describe the relationship between firm size and wages in Utah for those who earned a postsecondary degree/certificate. Any firm with 250 or more jobs located in Utah is considered a large firm, while the rest are classified as small firms. This research shows that, all else held equal, large firms tend to pay higher wages than small firms. Additionally, movement from a small to a large firm is associated with faster wage growth.

Large firms comprise just 4% of businesses that employ USHE graduates, yet employ roughly 50% of those graduates. This breakdown changes when disaggregating by gender or race/ethnicity. During the first year after completing a postsecondary program, large firms employ 55% of working women earning bachelor’s degrees. The amount of women employed in large firms increases to 63% by the fifth year. A similar dynamic holds for most racial and ethnic minority groups. A larger share of women and racial or ethnic minorities choose to work in large firms than in small firms. This difference may be related to differences in wages earned, by firm size.

Before controlling for other factors, women have higher median wages in large firms than in small firms (see Figure 1). This relationship holds when looking at graduates of all three postsecondary award levels. Despite this, women’s wages in large firms are less than men’s wages in large firms, though the wage gap tends to be smaller in large firms. This same trend is observed when looking at several racial/ethnic groups. For Black certificate earners and Hispanic associate and bachelor’s degree earners, wages are higher in large firms. The opposite trend appears for White certificate and bachelor’s degree earners, whose wages are higher in small firms. These relationships appear before controlling for other variables that are known to impact wages, such as age and prior labor market experience.

Figure 1: Average wages paid by large and small firms, by demographic group and postsecondary award

After controlling for confounding factors, this research shows that time spent in large firms is associated with higher wages, while small firms tend not to pay as much. For those who earned a technical certificate, working in a large firm resulted in a 6% increase in wages compared to employees of small firms, or about $1,694 annually. The effect is felt almost immediately; employees saw higher-than-expected wage growth in the very first year after moving from a small to a large firm. For those who earned a technical certificate, this wage growth reached as high as 4.5%.

For a more thorough overview, a data narrative summarizing key findings is available here. The full research report can be found here, and contains a deeper discussion of employment by firm size and gender, an overview of the relationship between firm size and race/ethnicity, and an analysis of how these change over time.