O-Ring Wage Inequality

22 Pages Posted: 11 Jul 2007

See all articles by Alberto Dalmazzo

Alberto Dalmazzo

University of Siena - Department of Economics

Tuomas Pekkarinen

Aalto University; Institute for the Study of Labor (IZA); VATT Institute for Economic Research

Pasquale Scaramozzino

University of Rome II - Faculty of Economics; University of London - School of Oriental and African Studies (SOAS); University of London - Centre for Financial and Management Studies (CeFIMS)

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

Dalmazzo, Alberto and Pekkarinen, Tuomas and Scaramozzino, Pasquale, O-Ring Wage Inequality. Economica, Vol. 74, No. 295, pp. 515-536, August 2007, Available at SSRN: https://ssrn.com/abstract=999447 or http://dx.doi.org/10.1111/j.1468-0335.2006.00553.x

Alberto Dalmazzo (Contact Author)

University of Siena - Department of Economics ( email )

Piazza S. Francesco, 7
Siena, I-53100
Italy
+39 0577 232 697 (Phone)

Tuomas Pekkarinen

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

VATT Institute for Economic Research ( email )

Pasquale Scaramozzino

University of Rome II - Faculty of Economics ( email )

Via Columbia n.2
Rome, 00100
Italy

University of London - School of Oriental and African Studies (SOAS) ( email )

Thornhaugh Street
Russell Square: College Buildings 541
London, WC1H 0XG
United Kingdom

University of London - Centre for Financial and Management Studies (CeFIMS)

Thornhaugh Street
London, WC1H 0XG
United Kingdom

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