Minimum Wage: Atrios Speaks, You Listen

Duncan Black is a “recovering” economist and he weighs in on the minimum wage debate in a post entitled Monopsony:

unless you believe that the labor market is accurately characterized as perfectly competitive then not only is it the case that the minimum wage doesn’t necessarily, reduce employment, it’s actually quite possible that small increases in the minimum wage will increase it. To the extent that firms have market power, and there’s plenty of reason do think they do, the impact of small minimum wage increases can potentially be either “paradoxically” to increase employment or to just basically be a wash … The real point is that if the minimum wage has small or negligible employment effects, and there is both theoretical and empirical support for this idea, then it’s a pretty effective and inexpensive poverty reduction program. Obviously if poverty reduction programs for poor people interest you less than, say, poverty reduction programs for oil executives then you don’t much care about that.

Duncan also recommends Monopsony in Motion: Imperfect Competition in Labor Markets by Alan Manning:

Much of labor economics is built on the assumption that all the workers will quit immediately. Here, Alan Manning mounts a systematic challenge to the standard model of perfect competition. Monopsony in Motion stands apart by analyzing labor markets from the real-world perspective that employers have significant market (or monopsony) power over their workers. Arguing that this power derives from frictions in the labor market that make it time-consuming and costly for workers to change jobs, Manning re-examines much of labor economics based on this alternative and equally plausible assumption. The book addresses the theoretical implications of monopsony and presents a wealth of empirical evidence.

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