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Specialization matters in the firm size-wage gap

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  • Molina-Domene, Maria

Abstract

This study applies the O-ring theory to explain the firm-size wage premium. It focuses on the joint role of the division of labor and employee characteristics. Including the firm heterogeneity of occupations in a standard wage regression with individual fixed effect shrinks the size coefficient by a third. Labor productivity follows a similar pattern as wages. The intuition is that individuals who work for large firms focus on a limited number of tasks become more efficient and productive, and earn higher wages. Additional predictions originating from the labor specialization hypothesis receive support from the data.

Suggested Citation

  • Molina-Domene, Maria, 2018. "Specialization matters in the firm size-wage gap," LSE Research Online Documents on Economics 88696, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:88696
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    File URL: http://eprints.lse.ac.uk/88696/
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    Cited by:

    1. Molina-Domene, Maria, 2018. "Labor specialization as a source of market frictions," LSE Research Online Documents on Economics 91703, London School of Economics and Political Science, LSE Library.
    2. Žilvinas Martinaitis & Aleksandr Christenko & Jonas AntanaviÄ ius, 2021. "Upskilling, Deskilling or Polarisation? Evidence on Change in Skills in Europe," Work, Employment & Society, British Sociological Association, vol. 35(3), pages 451-469, June.
    3. Maria Molina-Domene, 2018. "Labor specialization as a source of market frictions," CEP Discussion Papers dp1580, Centre for Economic Performance, LSE.
    4. Shao, Lin & Sohail, Faisal & Yurdagul, Emircan, 2023. "Are working hours complements in production?," Journal of Economic Dynamics and Control, Elsevier, vol. 153(C).

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    More about this item

    Keywords

    firm size-wage gap; specialization; division of labor;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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