Human Capital, Complex Technologies, Firm Size and Wages: A Test of the O-Ring Production Hypotheses

Li Yu and Peter Orazem

No 44873, Working Papers from Iowa State University, Department of Economics

Abstract: Kremer’s O-Ring production theory (QJE, 1993) describes a process in which a single mistake in any one of several tasks in firm’s production process can lead to catastrophic failure of the product’s value. This paper tests the predictions of the O-Ring theory in the context of a single market for a relatively homogeneous product: hog production. Consistent with the theory, the most skilled workers concentrate in the largest and most technologically advanced farms and are paid more. As with observed skills, workers with the greatest endowments of unobserved skills also sort themselves into the largest and most technology intensive farms.

Keywords: Labor and Human Capital; Production Economics; Farm Management (search for similar items in EconPapers)
Pages: 45
Date: 2008-09-24
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Persistent link: https://EconPapers.repec.org/RePEc:ags:genres:44873

DOI: 10.22004/ag.econ.44873

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