An unsolved problem in modem labor economics is the positive relation
between the size of the firm in which a worker is employed and his wag
e. One line of research that has been developed quite recently in this
field is the application of endogenous switching regression models. I
n this paper we utilize such a model to investigate firm-size wage dif
ferentials in the Netherlands. The principal findings are that larger
firms pay higher returns on schooling whereas smaller firms tend to re
ward IQ. Combined with the finding that high IQ-workers are sorted int
o the largest firms, the results are consistent with a model of job sc
reening. Furthermore, we find that employed sons of self-employed fath
ers are more likely to work in small firms and that wage prospects for
all types of workers are indeed most favorable in larger firms.