Are workers paid their marginal product? Evidence from a low wage labour market

Machin, Stephen ORCID: 0009-0004-8130-2701, Manning, Alan ORCID: 0000-0002-7884-3580 and Woodland, Stephen (1994) Are workers paid their marginal product? Evidence from a low wage labour market. CEP Discussion Papers (0158). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

Because of labour market frictions, the supply of labour to a firm does not fall instantaneously to zero if an employer cuts wages. This gives employers some monopsony power. In the absence of trade unions, minimum wages and efficiency wage considerations a profit-maximising employer will set a wage below the marginal revenue product of labour so that workers are, to use the terminology of Hicks and Pigou, exploited. This paper presents a method for computing the rate of exploitation. This method is then applied to a unique data set on workers in residential homes for the elderly on England''s sunshine coast. We conclude that, on average, firms pay workers about 15% less than their marginal product.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://cep.lse.ac.uk/_new/publications/series.asp?...
Additional Information:	© 1994 The Authors
Divisions:	Centre for Economic Performance Economics
Subjects:	H Social Sciences > H Social Sciences (General) H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor
Date Deposited:	27 Jun 2008 08:42
Last Modified:	25 Oct 2024 13:49
URI:	http://eprints.lse.ac.uk/id/eprint/6124

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