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

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  • Yu, Li
  • Orazem, Peter F.

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.

Suggested Citation

  • Yu, Li & Orazem, Peter F., 2008. "Human Capital, Complex Technologies, Firm Size and Wages: A Test of the O-Ring Production Hypotheses," Working Papers 44873, Iowa State University, Department of Economics.
    • Handle: RePEc:ags:genres:44873
    DOI: 10.22004/ag.econ.44873
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