Conservative case for raising the minimum wage

The belief that there is perfect competition or monopsony but no workable competition is a fallacy. Supply and demand only needs perfect competition to reach a perfect equilibrium.

 

You just keep repeating your error. Its very simple: you need perfect competition for your diagram to work. If you don't have it (and we don't) then wage making power will exist. Monopsony! Simply ignoring reality won't wash.

 

It only needs perfect competition to have a perfect equilibrium. Just because there is always a small disequilibrium during workable competition does not cause a monopsony. Competition in the economy is not perfect or very very small.

 

You've already been corrected over this. There is such thing as a 'perfect equilibrium' (you've plucked that out of the sky). Its required to ensure that you can draw that little diagram you gave. That describes how the market wage is formed. We know, however, that firms aren't wage takers.

Again, if firms have wage making power we know that monospony conditions hold. We also know (and its confirmed with the empirical evidence) that underpayment increases as we move down the wage distribution.

 

You deny the existence of the equilibrium wages unless the economy is in a immpossible condition.

 

As I said, the law of one price was rejected yonks ago. See, for example, Lester (1946, Wage Diversity and Its Theoretical Implications, Review of Economic Statistics, Vol. 28, pp152–159) and Slichter (1950, Notes on the Structure of Wages, Review of Economics and Statistics, Vol. 32, pp 80–91). You yourself rejected the notion when you acknowledged imperfect information. Job search frictions ensure a wage distribution independent of human capital or compensating differentials.

 

The existance of equilibrium wages in the imperfect economy is accepted by all mainstream and most non-mainstream economist. Your monopsony approach to justify a higher minimum wage suffers from the black or white fallacy.

 

Again, the existence of monopsony cannot be disputed. Are there job search frictions? Certainly. Does that mean firms have wage making power? Of course. Your whole position is based on a misunderstanding of supply & demand.

 

Your whole position is based on that if the economy is not in perfect competition the labor market as a whole becomes a big monopsopy and the laws of supply and demand are nullified in the labor market. Firms still compete over workers even in a less then fully employed economy.

 

Wrong again! My position is based on supply & demand and economic reality. I'm not the one that needs perfect competition. That is your position! I'm not the one reliant on perfect information. That is your position! I'm not the one ignoring empirical evidence (from the silliness of assuming the law of one price to the means to estimate underpayment levels). That is your position!

 

Truth is that firms can not simply push monopsonic terms on their workers in imperfect competition. And supply and demand does NOT rely on perfect competition for its basic rules to hold true, if you do not know that then you do not know supply and demand.

 

Again, you only inform me that you don't understand supply & demand. Firms, if they face an upward sloping labour supply, are wage makers. We know that there isn't a market wage. We know that there exists an inefficient wage distribution (independent of course of human capital). We therefore know that workers are underpaid. And the empirical evidence confirms that slice of obviousness!

 

Businesses are going to hire fewer teenagers for a "living wage" of lets say 15$ and hour or 20$ per hour then businesses would hire at 6$ per hour because the demand for labor is downwards sloping. No upward sloping labor supply is going to change that. A single business does not have monopsonic powers over the workforce.

 

There certainly is a limit to the minimum wage. Indeed, its actually a rather ineffective poverty alleviation device (given a lot of minimum wage workers are in non-poor households). However, this doesn't dispute the simple fact that a minimum wage is vital for supporting efficiency. This doesn't dispute the fact that you misrepresented supply & demand, using it inappropriately to suggest automatic disemployment effects

 

The black teenage unemployment rate is usually between 300% and 400% above the normal unemployment rate because they have their equilibrium wage below the minimum wage. This is a loss in effiency that is far bigger then a few monopsonies cured. A downward sloping demand curve means there is a loss in effiency from the minimum wage. A monopsony is when a buyer can dictate the terms toward the suppliers. A labor market were the labor supply is upwards sloped is not a monopsony, completely different.

 

You need to control for the numerous factors that impact on black unemployment rates.That of course includes discrimination but also variables such as location effects. You're also deliberately misrepresenting the situation as there is no such thing as equilibrium wage, as I've already proved.

This is inconsistent with supply & demand. A downward sloping labour demand will only inform us of efficiency losses if firms are wage takers (such that their average and marginal labour costs coincide). We know that isn't the case.

Wrong again! Monopsony power informs us that there is wage making power. All that is required is that the firm faces an upward sloping labour supply curve. That is traditional derived through 'one buyer'. However, it is also derived through job search friction and heterogeneous worker preferences. Monopsony is the norm and your position is indeed inconsistent with labour market reality.

 

The simple fact is that the minimum wage make jobs whos worth is below the minimum wage illegal. The entire labor market is not a big monopsony, if you think it is then you have no idea what a monopsony is.

 

Monopsony power refers to wage making power. It exists, by definition. Economic theory predicts it and empirical evidence proves it. Your position is alien to economic reality.

 

An employer competees with other employers over the employees and they compete over eachother to get the best employer and the employers want the best employees. The economy is alot more complex then employers vs employees. Only a very small percentage of employers have a monopsony over their employees.

 

This is just further error over supply & demand. Of course there is a distribution in worker quality (as summed up by the notion of human capital, which entails any characteristic which increases productivity). Monopsony leads to wage differentials independent of those quality differences. And of course, even though there is underpayment, that underpayment can be reduced through in-work job search. That doesn't matter as the result is still the same: a minimum wage reduces market failure

 

But employers do not have a monopsony power over their employees. It is a pure fallacy that empoyers can dictate cruel terms and not get punished by his workers because of it. Any business owners who tries that will have to change his approach of treating his workers or go out of business. The economy is not a big monopsony.

 

You again have to assume perfect competition exists. We know that monopsony power only requires job search frictions (i.e. it takes time to find jobs such that a reservation wage strategy is adopted)

All we need is that they have an upward sloping labour supply curve. You've been informed of this numerous times, so time to catch up! Think of the consequences: they can reduce wages without losing all of their employees. And what should they do? Set quantity demanded according to where marginal revenue product of labour equals marginal cost of labour. Given marginal cost of labour exceeds average cost, that will assuredly lead to market failure. Its obviously better to see it within the job search framework. That defines underpayment and provides a means to understand the inefficient wage differential

 

So you are saying that monopsony power actually belongs to the (monolithic) "employee", based on the identical reservation wage they all establish, and not on the (monolithic) "employer"?

Being the hiring entity, employers have a degree of power. But, with the internet, the job seeker can identify far more jobs than employers have openings. Obviously, this depends on the job market, but being we spent little of the last 30 years in recession, the employee was rarely effected by monopsony.

What about those earning minimum wage - read some panel studies (follow the same people for 40+ years). Minimum wage is a short lived situation, even in this economy.

That is all? The slope of the demand curve has no impact at all? The age and experiences of that labor supply, has no impact?

How often do employers lower wages? The only recent occasion I saw that was in 2009, as an alternative to lay offs.

Why? Because an employee doesn't have one level of productivity. Reduce wages, and productivity falls, as do profits. You get the same effect if business is booming, and your employees think the competition pays better.

Think very carefully. How long will the down turn last? Will my employees get even? can I fire them and hire people that are hungry enough to work for peanuts? (what is the cost of terminating employees?). How will pay cuts effect the morale of the unaffected employees (they will expect they are next, and react accordingly), etc.

Just like that. No concerns about repercussions?

 

Employers having power over their employees is not monopsony. To try to argue that is to render the word meaningless. If anything the monopsony is the federal government and its anti-inflation stances that cause wages and jobs to be less sticky, therefore subjecting workers to true unadulterated supply and demand labor dynamics.

 

Of course it is. Same beast: upward sloping labour supply such that market power is derived. The only distinction is slight change in vocab to ensure that its not confused with the traditional 'one buyer' outlook: e.g. job search analysis is often summed up as dynamic monopsony (given its an analysis into underpayment over time)

This is nonsense. First, wage stickiness will typically have naff all to do with government. Wage norm analysis, for example, reflects a mixture of bilateral monopoly (with reference to unionisation) and also the nature of the internal labour market (where human resource management replaces supply & demand criteria). Second, you've murmured about the definition of monopsony and then said something that makes no sense. You'd only have a point if you were back to the traditional view of monopsony and some form of state capitalism