Abstract for:

Are Workers Paid their Marginal Product? Evidence from a Low Wage Labour Market

Stephen  Machin,  Alan  Manning,  S  Woodland,  July 1993
Paper No' CEPDP0158:

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Is hard copy/paper copy available? NO - Paper Copy Out Of Print.

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This Paper is published under the following series: CEP Discussion Papers

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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.