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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:

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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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