Back when Card and Krueger first suggested that there was substantial effective monopsony power in the low-wage labor market and thus that there would be no disemployment effect from (modest) increases in the minimum wage to make it binding, I said: "Clever, but nahhh." The reason for their findings, I thought, was that labor demand is just inelastic in the short and perhaps the medium run--but maybe not in the long run.Card and Krueger was published in 1993. Brad is referring a more recent paper:
Over the past three years, 18 states plus the District of Columbia have implemented minimum wage increases, joining ten other states that have raised their minimum wages at least once since the last Federal increase in 2009. This column examines the impact of the more recent state increases on wages, weekly earnings, and employment among workers in the low-wage leisure and hospitality Industry. A comparison with states with no minimum wage increase since 2009 suggests that the recent legislation contributed to substantial wage increases with no discernible impact on employment levels or hours worked.Back in 1980, the Wall Street Journal ran a series of op-eds criticizing the Yale secretary union with the usual Econ 101 model that pretends labor markets are perfectly competitive. I figured the authors of these op-eds had never taken Metro North to New Haven. After all in Manhattan, they had to compete with other newspapers, banks, law firms, and all sorts of employers for secretaries. Not that a competitive market could even raise their pay to the point where they did not have to ride the subways from the outer boroughs. But New Haven was a one company town – Yale was a monopsonist. I actually ghost wrote an op-ed for these secretaries. Alas I do not have a copy or a link by Brad ably captured the simple point:
Employers actually do have substantial monopsony power in the low-wage labor market--even though they shouldn't. And the minimum wage is best thought of as an anti-monopsony rate-regulation policy that raises low-wage employment, raises average low-wage earnings, and brings the market closer to its competitive equilibriumIn short – not all labor markets are the same, which is a point Dani Rodrik when he explained why we need to navigate model. Just before I moved, I had a few dates over beers with a lovely nurse who had moved from Boston to work for the Yale hospital. She was appalled that the hospital was so understaffed with nurses that were so underpaid. I gave her a copy of what I had ghost written and encouraged her to organize a nurses union.