3. (35) The Firm-Size Wage Premium. Data shows that firms with more employees pay higher wages. This empirical regularity is known as the firm-size wage premium. We want to use the theory of wage dispersion of Burdett and Mortensen (1998) to understand this phenomenon. a. (5) Let n(w) denote the number of workers employed by a firm that offers the wage w. In any period, how many workers does the firm lose because of exogenous separations and because of poaching from other firms? 3 b. (5) In any period, how many workers does the firm hire from either unemployment or from other firms? [ You can assume w 2 R in answering]. c. (5) In a stationary equilibrium, the flows of workers in and out of the firm must balance. Use this obser vation to derive a formula for the size of the firm n(w).d. (5) Using the formula derived in (c), derive the relationship between the rm's wage in and its size n(w). Explain why this relationship is positive. e. (5) What is the size of the rm oering the lowest wage in the market m = R? What is the size of the rm oering the highest wage in the market 111 = E? f. (5) The ratio n(E)(m) is a measure of concentration in the labor market. What happens to labor market concentration when competition increases, in the sense that AB increases? g. (5) Most economic reporters, and many academic economists, interpret increasing concentration as evi dence of declining competition. In light of the theory developed here, is such interpretation warranted