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A test of competitive labor market theory: The wage structure among care assistants in the South of England

  • Stephen Machin
  • Alan Manning

This paper examines the structure of wages in a very specific labor market: care assistants in residential homes for the elderly on England's "sunshine coast." This sector corresponds closely to economists' notion of what should be a competitive labor market, both because it has a large number of small firms undertaking a very homogeneous activity in a concentrated geographical area, and because the workers are neither unionized nor covered by any minimum wage legislation, so that there are effectively no external constraints on the wage-setting process. The authors find that the wage structure deviates in important respects from what would be expected in a competitive labor market. In particular, wage dispersion is small within firms, but large between firms; and the wage dispersion that is present does not seem to be closely related to workers' productivity-related characteristics. A test rejects the hypothesis that unobserved labor quality can explain these findings. (Author's abstract.) (Free full-text download available at http://digitalcommons.ilr.cornell.edu/ilrreview/.)

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Article provided by ILR Review, Cornell University, ILR School in its journal ILR Review.

Volume (Year): 57 (2004)
Issue (Month): 3 (April)
Pages: 371-385

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Handle: RePEc:ilr:articl:v:57:y:2004:i:3:p:371-385
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