Hierarchy and the Employer Size Effect on Wages: Evidence from Britain

We argue that employer size wage effects reflect the role of hierarchy. Using matched employer-employee data and individual longitudinal data, we show that the employer size wage effects for supervisors are approximately twice those for non-supervisors. We confirm sorting on supervisor ability, and present evidence of additional match-specific wage returns for supervisors. We demonstrate that spans of control influence the establishment size return for supervisors but not for non-supervisors. Talented supervisors sort into larger establishments taking a talent premium with them, but they also receive a match-specific return on that talent only when matched with a larger establishment.