Abstract
I examine the relationship between firm size and skill composition, using microdata from Australian workers and firms between 2011 and 2019. Larger firms have more skilled workers, but as firms grow, they shift towards employing more low-skilled labor. To explain these patterns, I develop a simple model that separate total factor productivity and skill-biased productivity, in which firms choose their scale and workforce composition. I validate the model by analyzing the effects of a payroll tax policy change in South Australia, and demonstrate that firms adjusted both their scale and skill mix. Finally, I use a calibrated quantitative model of the Australian labor market to explore the implications of shifts in aggregate skill composition on the distributions of firm size and earnings inequality. I find that an 11pp increase in the educated share of the workforce leads to employment gains of 5% in the the largest firms, an aggregate reallocation of 1% of workers to the large firms, and a 0.1% increase in the aggregate skill premium, despite decreases in skill premia within all firms. The results highlight how accounting for employment composition decisions by firms is crucial for understanding observed patterns of worker skill distribution and earnings across firms.

View Chase Abrams' Full Job Market Paper