A Test of Competitive Labor Market Theory: The Wage Structure among Care Assistants

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. There is a long history in labor econom- ics and industrial relations of studying wages in specific labor markets. This inter