Wages, wage policy and the family firm: firm-level evidence on the Netherlands

Abstract

This paper focuses on wage differences between family and non-family firms. Using a matched employeremployee dataset of 1802 firms for the period 2010-2013 in the Netherlands, we confirm that family firms pay on average lower wages, with a discount that lies around 12% once we control for (un)observed worker and firm characteristics. Our results reveal that worker and/or firm fixed effects can be attributed in explaining the family wage discount. Indeed, we find that worker fixed effects partially explain the family wage discount with about 4.5% points. On the other hand, firm fixed effects contribute to an increasing wage gap of family firms. This may be explained by the fact that workers in family firms tend to sort themselves into firms that pay, on average, lower wages. Next, we make unobserved firm heterogeneity more explicit by looking at the role of unions. Our analyses reveal differences between family and non-family firms in terms of wage policy. The bargaining power in family firms appears to be lower, which implies that the role of unions in those firms is rather limited. Our analysis further reveals that these results hold only for high-skilled firms.