Wage-size relation and the structure of work-force composition in Italian manufacturing firms

In this paper we study the impact of firms’ productivity and scale of activity on the cost of labour for Italian manufacturing firms, investigating how the work-force composition affects the total expenditures for wages. Our analysis reveals that once productivity differences among firms are accounted for, size still retains a positive effect on cost of labour. We show that the source of this phenomenon is the relatively higher proportion of non-production workers in bigger firms, which results in a cost of labour for white collar workers that increases with increasing firm size.