Christina Romer on Monopsony in U.S. Labor Markets
By David Henderson
One argument for a minimum wage is that there sometimes isn’t enough competition among employers. In our nation’s history, there have been company towns where one employer truly dominated the local economy. As a result, that employer could affect the going wage for the entire area. In such a situation, a minimum wage can not only make workers better off but can also lead to more efficient levels of production and employment.
But I suspect that few people, including economists, find this argument compelling today. Company towns are largely a thing of the past in this country; even Wal-Mart Stores, the nation’s largest employer, faces substantial competition for workers in most places. And many employers paying the minimum wage are small businesses that clearly face strong competition for workers.
This is from Christina Romer, “The Business of the Minimum Wage,” New York Times, March 2, 2013.
Christy, if you recall, was the first chair of the Council of Economic Advisers under Obama. She thought much more clearly on this than the current chair, Jason Furman.
The whole piece is actually quite good.
Here’s the paragraph directly above the two I quoted:
First, what’s the argument for having a minimum wage at all? Many of my students assume that government protection is the only thing ensuring decent wages for most American workers. But basic economics shows that competition between employers for workers can be very effective at preventing businesses from misbehaving. If every other store in town is paying workers $9 an hour, one offering $8 will find it hard to hire anyone — perhaps not when unemployment is high, but certainly in normal times. Robust competition is a powerful force helping to ensure that workers are paid what they contribute to their employers’ bottom lines.
HT to the excellent Cyril Morong.