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

Stephen Machin and Alan Manning

ILR Review, 2004, vol. 57, issue 3, 371-385

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.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ilrrev:v:57:y:2004:i:3:p:371-385

DOI: 10.1177/001979390405700303

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