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The Structure of Wages in What Should be a Competitive Labour Market

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  • Stephen Machin
  • Alan Manning

Abstract

This paper examines the structure of wages in a very specific labour market, for 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 labour market as: (i) there are a large number of small firms undertaking a very homogeneous activity in concentrated geographical areas; and (ii) the workers they employ are not unionized, nor are they covered by any minimum wage legislation so that there are effectively no external constraints on the wage-setting process. We find that the structure of wages does not, in important respects, resemble what we would expect in a competitive labour market. We find there is a small amount of wage dispersion within firms and a correspondingly large amount between firms. And, the wage dispersion that is present does not seem to be closely related to the productivity related characteristics of workers. We propose a test of the hypothesis that unobserved labour quality can explain our findings and reject it. The paper concludes with a discussion of other possible explanations of the patterns in our data.

Suggested Citation

  • Stephen Machin & Alan Manning, 2002. "The Structure of Wages in What Should be a Competitive Labour Market," CEP Discussion Papers dp0532, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp0532
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    Cited by:

    1. M. Neugart, 2004. "Endogenous Matching Functions: An Agent-Based Computational Approach," World Scientific Book Chapters, in: Roberto Leombruni & Matteo Richiardi (ed.), Industry And Labor Dynamics The Agent-Based Computational Economics Approach, chapter 6, pages 90-106, World Scientific Publishing Co. Pte. Ltd..
    2. Machin, Stephen & Manning, Alan & Rahman, Lupin, 2002. "Where the minimum wage bites hard: the introduction of the UK national minimum wage to a low wage sector," LSE Research Online Documents on Economics 20070, London School of Economics and Political Science, LSE Library.
    3. Toshiki Tamai, 2009. "Employment, fiscal Policy and Oligopsonistic Labour Market," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 12(3), pages 321-337.
    4. Camille Logeay & Sabine Stephan & Rudolf Zwiener, 2011. "Driving forces behind the sectoral wage costs differentials in Europe," IMK Working Paper 10-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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    More about this item

    Keywords

    Wage Dispersion; Competitive Model;

    JEL classification:

    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

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