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

Stephen Machin, University College London
Alan Manning, London School of Economics

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.

Recommended Citation

Machin, Stephen and Manning, Alan (2004) "A Test of Competitive Labor Market Theory: The Wage Structure among Elder Care Assistants in the South of England," Industrial & Labor Relations Review, Vol. 57, No. 3, article 3.
Available at: http://digitalcommons.ilr.cornell.edu/ilrreview/vol57/iss3/3