Thursday, July 12, 2018

Jodi Beggs on employer monopsony power and mimumum wage

This is Joseph

Jodi Beggs has a great post on the minimum wage in the presence of employer monopsonies.  If there is only one buyer of market labor, that purchaser has a decided advantage.  Her main point of doing this analysis was to make the point that:

If a labor market is a monopsony (or if employers have monopsony power), minimum wages could actually increase rather than decrease employment.
She provides a number of worked examples, which are fun to look over.

What this made me wonder about the is the role of non-compete agreements in labor markets.  For example, there is a sandwich company that used to enforce non-compete agreements. Insofar as actors include these agreements in employment contracts, we might be closer to the point where minimum wages have a reduced cost (or even a benefit) to employment levels.  This is also likely to occur in high skill areas where the number of employers is small.  If you are a skilled airplane builder and live in Montreal, you will find limited employer options that are not Bombardier.  Moving has costs and, in the modern world, it isn't necessarily trivial to immigrate.

These effects may also occur in small markets, where the number of competing employers is limited, which is more of what Jodi Beggs was worrying about in her post.  In order for market forces to work properly, there are a number of key assumptions that are required.  There being multiple buyers of labor is one of these and we shouldn't be surprised if your intuitions are reversed in some markets.

Now how that works for things like the Seattle minimum wage are more complicated.  But this could be an important layer to understanding this as different studies had slightly different industries and it may be that employer diversity is confounding some of these associations.

But it is worth reflecting on as it makes the arguments against the minimum wage a lot weaker if there are market monopsonies present.  If so, then the policy benefits of this policy are actually pretty great.

(Jodi Beggs points to an article on the topic, and the evidence seems mixed, but not ignorable).

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