A Test of Competitive Labor Market Theory: The Wage Structure Among Care Assistants in the South of England

Posted: 13 Apr 2004

See all articles by Stephen J. Machin

Stephen J. Machin

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP); London School of Economics & Political Science (LSE) - Department of Economics

Alan Manning

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Abstract

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.

Keywords: competitive labor market theory

JEL Classification: J31

Suggested Citation

Machin, Stephen J. and Manning, Alan, A Test of Competitive Labor Market Theory: The Wage Structure Among Care Assistants in the South of England. Industrial and Labor Relations Review, Vol. 57, No. 3, pp. 371-385. Available at SSRN: https://ssrn.com/abstract=529086

Stephen J. Machin (Contact Author)

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Alan Manning

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
(44 20) 7955 6078 (Phone)

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