The Minimum Wage

Monopsony:Pro's source does not show that urban labor markets are monopsony—it argues that they are a sort of ‘oligopsony’, something between perfect competition and monopsony. This is an important distinction—the paper argues that a minimum wage would not have just positive effects in this environment, as it would with a monopsony, but both raise wages and drive some employers out of businesses. Another important distinction between monopsony and oligopsony is their causes. A monopsony is simply a monopoly buyer—but an oligopsony is more complicated than that. The author’s of Pro’s source theorize that the main reason labor markets aren’t perfectly competitive is that workers have heterogeneous preferences. Workers prefer different kinds of work. They live in different places, and thus may have different transportation costs for the same job. Or they may experience the same transportation costs differently—one person may dislike a 1 hour commute more than another person. So an employee might accept a lower wage in exchange for a shorter commute. Thus, wages may be lower than a worker’s marginal productivity. But this doesn’t necessarily mean that a minimum wage will be beneficial. Remember that the paper concludes that under an oligopsony, a minimum wage will decrease employment in some places and increase it in others. It’s not like a monopsony, where higher wages would mean that that employer will increase employment. Some people with low wages might get higher wages, but others will lose their jobs. Even if the minimum wage worked as it was supposed to, and it raised wages with the employment and disemployment effects canceling each other out—workers would still be worse off. Remember that workers with low wages accept those low wages in return for other benefits—they like that type of work more than other, higher paid work, or they’d rather have low wages near home than higher wages with more transportation costs.Pro ignores my argument about different levels of labor market competitiveness in different areas. Even if an area has monopsony employment power, that doesn’t mean a minimum wage will help. If the minimum wage was everywhere, it would help in the monopsony area and hurt everywhere else. And if it varied by area—having a minimum wage in the monopsony area and not anywhere else—it would drive the demand for labor away from the place with a minimum wage and toward other places. This same logic applies to monopsonistic competition. Even if politicians could find the exact right minimum wage—an amount between the competitive and monopsonistic wage—it would be different for different places, depending on the level of competition among employers. If a uniform minimum wage was set across the nation, then it couldn’t be between the competitive and monopsonistic wage rate everywhere—it would raise wages for some people, but lower employment elsewhere. If you had different minimum wages in different places, not only would some of them probably be set at the wrong level, but it would drive labor demand away from high minimum wage areas and toward lower minimum wage areas. This is harmful because 1) employers produce things in the place where it’s most efficient to do so—artificially moving labor demand around reduces efficiency, and 2) the lower demand in high minimum wage areas could drive the minimum wage above the competitive wage, even if it was between the monopsonistic and competitive wage before.Big Increases, Small Decreases:Again, this is irrelevant. My point is that if businesses raise prices in response to a minimum wage, the demand for their goods would decrease, and thus those businesses would demand less labor.Price Elasticity:It doesn’t matter how “essential” the goods are. Even if you don’t care about reductions in “conspicuous consumption” for its own sake, any such reduction means that the sellers of such goods don’t need as much labor, and thus will reduce employment. Marginal Productivity:Pro argues that a higher minimum wage has psychological effects, like people feeling properly treated, or people respecting Chinese products more if their workers were paid more. However, he has absolutely no evidence for these claims. I could just as easily say that a minimum wage makes people lazy and lowers their productivity. But obviously, that wouldn’t count as an argument, because it’s just an unsubstantiated assertion.What matters is not whether marginal productivity can be changed, but whether the minimum wage changes it. If it doesn’t, then my theory is correct. And Pro has provided absolutely no evidence that the minimum wage changes marginal productivity. The only evidence he had, the Locke study, concludes that wage increases only increase productivity if they’re tied to productivity increases—it says nothing about minimum wages increasing productivity because of the psychological effects Pro claims.Empirics:Meta-studies about the minimum wage showing publication bias have been criticized for statistical problems—“In other disciplines, meta-analyses of published papers--generally focusing on clinical trials--provide some evidence consistent with a bias towards publication of significant results (see, for example, Berlin et al. [1989]), under the (reasonable) presumption that the parameter of interest, such as the effect of a drug, should be constant across studies. In economics, however, the parameters of statistical models are more likely to vary across samples---especially when the samples cover different time periods--because of changed behavior (e.g., Lucas [1976]), model misspecification, or measurement changes. The possibility of parameter instability makes it difficult to apply standard meta-analysis techniques to the economics literature, because these techniques draw inferences regarding publication bias from changes in estimates across samples.” [1] In addition, if the minimum wage does, in fact, cause unemployment, then we should expect publication bias. If the minimum wage does cause unemployment, then papers showing that it doesn’t would be more likely to have lower data quality, fewer statistical controls, or other problems, and thus should be less likely to be published. For example, the Card and Krueger study Pro mentions has been criticize for using phone surveys instead of payroll data—further studies on the same area using payroll data instead of surveys failed to replicate their results. [2] So, if there was publication bias, it could be because studies showing that the minimum wage was effective tended to be of lower quality, not because journal editors were biased. [1] Neumark, David, and William Wascher. "Is The Time-Series Evidence On Minimum Wage Effects Contaminated By Publication Bias?." Economic Inquiry 36.3 (1998): 458. [2] Neumark, David and William Wascher, "The Effect of New Jersey's Minimum Wage Increase on Fast-Food Employment: A Reevaluation Using Payroll Records." American Economic Review, Vol. 90, No. 5 (December), pp. 1362–96.