Hierarchy, Wages and Firm Size

The thesis of the paper is that the hierarchical structure of organizations contributes to the explanation of the well-known firm size-wage effect. A theoretical analysis elaborates why and how wages may depend on hierarchical position and span of control. It is argued that wage premiums for supervisors add to the explanation of the firm size-wage effect, but that an effect of span of control should not be expected. In empirical analyses, both hypotheses are confirmed. The hierarchical structure of organizations explains at least 4 and at most 48 per cent of the wage gap between large and small firms.