Saturday, December 3, 2016

Minimum Wages: Labor Markets in Manhattan v. New Haven

When I lived in New Haven (1980/81) one of my first questions related to what appeared to be an excess supply of eating establishments. My friends explained that this happened when the Yale janitors and cooks led a successful strike to increase their wages. In the year that I lived there, the secretaries finally were able to form their own union despite a lot of bullying from Yale. Brad DeLong reminded me of this with:
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 equilibrium
In 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.


Unknown said...

While monopsony power can make a cleverly designed minimum wage welfare improving in particular markets and contribute to low measured elasticies in broader markets, I still think that a higher EITC and or elimination of wage taxation to finance SS and Medicare benefits is a much better way to address the problem of raising the incomes of low wage workers.

Denis Drew said...

EITC, at $70 billion in a $17 trillion economy transfers 1/2 of one percent of income (income is 2/3 of GDP) -- in a labor market where 45% of employees are making less than what we think the minimum wage should be ($15). IOW, better look for a more pervasive solution.

These days I'm thinking labor unions be a much more pervasive -- and (yes) a much more doable (believe it or not) solution. More pervasive because a simple fix covers the entire labor market (of a state) -- doable because it is set and forget: just make organizing a collective bargaining unit er, uh, doable in the sense of you can just do it at will; no gauntlet to run ...

... and then let the truly free market sort out everything else.

Our labor market is the only market where market muscle can be used with impunity to squeeze the other side in the bargaining even though such is officially recognized in law as illegal (NLRB lacks enforcement power). Our US labor market is the only modern, first world labor market where union busting happens -- doesn't exist over there or over there as far as I know -- just not in the culture (scabs; what's that?).

If there were no labor laws at all at the local or state level, nobody would doubt the power of individual states to make union busting a felony. Guess what? States can add to current (placebo level) federal protections just like states can add to the fed min wage, not subtract.

Easy then: progressive states (WA, OR, CA, NV to cite one block) make union busting a felony -- and get out of the way of the first 2000 people in the phone directories. From there, it is a war of clear and hold -- hopefully on our way to becoming more like continental Europe (or even as exotic a region as, er, Canada).

Denis Drew said...

45% of the US workforce pulls down $600 a week or (a lot) less. The 45% pull in only 10% of overall income.

The next 54% pull in 70%. Top 1% pull 20% -- up from 10% a couple of gens back.

A unionized bottom 45% could (could) squeeze 10% of overall income out of the next 54% by raising prices at Walmart or McDonald's. Take more radical measures for the 99% to squeeze back 10% from the top 1%.

The 99%'s unions wont think twice about resetting the 90% fed income tax on earnings over $2 million, say. Or whatever it takes.

Overall, the money is there -- and so is so much efficiency through reform. Less financialization, less (much less!) pharma price gouging, fewer pro-profit ed ripoffs. Enough union density puts an reform cop on ever corner.

Come to think of it enough unions is the only thing that can clear up the last of the US crime wave: the drug wars on impoverished neighborhoods streets.

Bobsjoy said...

The fundamental purpose of work is to provide people with what they need to live. When work pays less than a living wage it fails to meet this fundamental purpose. It requires a subsidy to sustain the worker. The subsidy benefits the employer and/or consumer as well as the worker. The subsidy demeans both the worker and the work. A living wage eliminates subsidies and provides the worker with dignity.

Denis Drew said...

Under Trump, red states are finally going to be able to turn themselves into poor, unhealthy paradise
By Steven Pearlstein December 4 at 9:34 AM

"If the Trump administration makes good on its promise to pull back on environmental regulation, states can step up their own regulation of power plant emissions and oil and gas drilling. To combat climate change, they could impose a refundable carbon tax or, as California has done, create a cap and trade system for carbon emissions.

"If Republicans repeal the Dodd-Frank financial regulations, many of those same regulations could be written into state law, either by legislatures or by state banking, securities and insurance regulators and consumer protection agencies. Taking a page from Louis Brandeis and the Progressive era, states could also provide incentives for the creation of state-chartered mutual banks, insurance and investment companies, financial institutions that are owned by their customers. The few mutuals that still exist offer competitive products and superior service at lower cost, all of it with less risk that the Wall Street mega-firms have turned finance into a head-I-win, tails-you-lose casino.

"Nobody expects a Republican Congress and White House will move to increase the federal minimum wage but there is nothing to prevent states from raising theirs. Nor is there anything preventing states from restoring within their borders many of the workers rights that the Republican Congress and President-elect Donald Trump are poised to eliminate.

"And if the Justice Department and the Federal Trade Commission give the all-clear signal for corporate mega-mergers, as you can expect they will, attorney generals from blue states can ban together to file federal and state antitrust suits to block them. The attorney generals could also take a page from the playbook of the Chamber of Commerce and other conservative activists and use of the federal courts to try endlessly delay or block regulatory actions or repeals proposed by the Trump administration."