Library Header Image
LSE Research Online LSE Library Services

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

Machin, Stephen, 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.

Full text not available from this repository.


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:
Additional Information: © 1994 The Authors
Divisions: Centre for Economic Performance
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: 16 May 2024 11:18

Actions (login required)

View Item View Item