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O‐ring Wage Inequality

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  • ALBERTO DALMAZZO
  • TUOMAS PEKKARINEN
  • PASQUALE SCARAMOZZINO

Abstract

We examine the relationship between technological complexity and wage inequality, using an efficiency wage model that adopts Kremer's O‐ring production function. The model has two main implications: (i) when the production process becomes more complex, within‐task wage differences increase between plants, and (ii) between‐task wage differences increase within plants. We study these implications empirically using industry data providing quantified information on the complexity of the tasks. We find that wages increase in all the tasks with the complexity of the production process. Furthermore, the relationship between the complexity of the tasks and wages is steepest in the firms with more complex production processes.

Suggested Citation

  • Alberto Dalmazzo & Tuomas Pekkarinen & Pasquale Scaramozzino, 2007. "O‐ring Wage Inequality," Economica, London School of Economics and Political Science, vol. 74(295), pages 515-536, August.
    • Handle: RePEc:bla:econom:v:74:y:2007:i:295:p:515-536
    DOI: 10.1111/j.1468-0335.2006.00553.x
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    File URL: https://doi.org/10.1111/j.1468-0335.2006.00553.x
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    References listed on IDEAS

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    1. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 235-290, National Bureau of Economic Research, Inc.
    2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
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    Cited by:

    1. Li Yu & Peter F. Orazem, 2014. "O-Ring production on U.S. hog farms: joint choices of farm size, technology, and compensation," Agricultural Economics, International Association of Agricultural Economists, vol. 45(4), pages 431-442, July.
    2. Ferrarini, Benno & Scaramozzino, Pasquale, 2013. "Complexity, Specialization, and Growth," ADB Economics Working Paper Series 344, Asian Development Bank.
    3. Huangnan (Jim) Shen, 2020. "Profit Sharing, Industrial Upgrading, and Global Supply Chains: Theory and Evidence," CID Working Papers 123a, Center for International Development at Harvard University.
    4. Ferrarini, Benno & Scaramozzino, Pasquale, 2016. "Production complexity, adaptability and economic growth," Structural Change and Economic Dynamics, Elsevier, vol. 37(C), pages 52-61.
    5. Fumio Dei, 2010. "Peripheral Tasks Are Offshored," Review of International Economics, Wiley Blackwell, vol. 18(5), pages 807-817, November.
    6. Fernández, Rosa M. & Nordman, Christophe J., 2009. "Are there pecuniary compensations for working conditions?," Labour Economics, Elsevier, vol. 16(2), pages 194-207, April.

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