We study how the hourly wage structure varies with establishment size in the U.S. manufacturing sector and how wage dispersion breaks down into between-plant and within-plant components. Wage dispersion falls sharply with establishment size for nonproduction workers and mildly for production workers.
This pattern is entirely accounted for by the between-plant component of wage dispersion. Size-class differences in wage dispersion often mask even sharper differences in the dispersion of wages generated by observable worker characteristics and in the "skill prices" on those characteristics.
Guided by these and other empirical findings, we assess several hypotheses about the determination of the wage structure.