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Abstract:![]()
CEP discussion paper
Specialization matters in the firm size-wage gap Maria Molina-Domene May 2018 Paper No' CEPDP1545: Full Paper ![]() 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. |
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