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

Machin, Stephen and Manning, Alan and Woodland, Stephen (1994) Are workers paid their marginal product? Evidence from a low wage labour market. CEP Discussion Papers, 0158. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Identification Number: 0158


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
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Date Deposited: 27 Jun 2008 08:42
Last Modified: 13 Feb 2018 17:03

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