Testing for wage overpayment in UK financial services: A stochastic frontier approach

The past ten years have witnessed a sharp rise in competition in UK financial services. This has been due to factors such as liberalisation, increases in technology and advancing globalisation. As a result of these pressures there has been an increasing emphasis placed on cost management and overall efficiency in the financial services firm. This article examines the impact of these developments on the degree of wage overpayment in the UK financial services sector between 1991 and 1999. By utilising stochastic frontier methodology, we surprisingly find that overpayment levels are large at around 30 per cent and that there is no evidence of a decline in overpayment levels over the testable period.