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No Monopsony Presumed by This Minimum-Wage Advocate

Posted By Don Boudreaux On November 4, 2013 @ 6:33 am In Reality Is Not Optional,Seen and Unseen,Work | Comments Disabled

My brilliant and humane colleague Bryan Caplan is an eloquent, passionate, and, to my mind, persuasive proponent of open borders.  Bryan ruminates here at EconLog on his recent Intelligence Squared debate that dealt with this matter [1].

One of the debaters on the side opposite Bryan was Ron Unz.  In his post, Bryan mentions Unz’s proposal for a higher minimum wage.  Unz’s goal with this legislation is precisely and explicitly to reduce the job prospects of newly arrived low-skilled immigrants – workers who are, of course, the lowest-skilled of low-skilled workers.  (See Unz quoted at point 5 in this earlier post of Bryan’s. [2])  Here’s the bulk of a comment that I just left on Bryan’s EconLog post from yesterday:

Ron Unz’s case for a higher minimum wage rests on the presumption that a higher minimum wage reduces the demand for low-skilled workers. While I strongly disagree with Unz’s minimum-wage proposal (and much else in Unz’s restrictionist views), I’m quite sure that Unz’s presumption about the harmful consequence that minimum-wage legislation unleashes on the poorest of poor workers is correct. But that presumption is at odds with the fashionable-in-some-circles presumption that minimum-wage legislation is justified to correct some ill-effects of alleged monopsony power in labor markets. If the monopsony presumption is correct, then minimum-wage legislation increases (or, at least, doesn’t decrease) the employment prospects of low-skilled workers.

I recognize that it’s possible for Unz’s presumption to operate in some circumstances and the monopsony presumption to operate in others. But it warrants recognition that Unz is very much akin to most minimum-wage proponents throughout history: these proponents recognize – or, at least, presume without question – that higher minimum wages operate precisely as basic economics predicts: to restrict the lowest-skilled of low-skilled workers from the formal labor market.

Say what you will about Unz, he at least understands the economics of minimum-wage legislation.  He sees that which to most people – certainly, that which to most of the general public who endorse minimum-wage legislation – remains unseen.

Back in the early 1980s at Auburn University, Roger Garrison (now retired from teaching there) had to give an undergraduate student an “A” grade for an answer to a test question about minimum-wage legislation.  The student endorsed the legislation precisely because the legislation prices many blacks out of the labor market – and that southern-boy student believed that consequence to be just dandy.  The kid, like Unz, has values that I (and Roger Garrison) abhor.  But that kid, like Unz, got the economics right.

One should be doubly suspicious of any policy proposal that is presumed (even sometimes trumpeted) by some of its proponents to have effect E and presumed (even trumpeted) by some other of its proponents to have effect not- or negative-E.  Even if, as is surely the case in abstract theory, situations can be identified when the proposal will have effect and other situations identified when it will have effect not- or negative-E, to imagine that governments will consistently act with the knowledge, wisdom, and apoliticalness required to distinguish between these two different situations in reality is to imagine a pig flying by flapping its ears.

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URLs in this post:

[1] Bryan ruminates here at EconLog on his recent Intelligence Squared debate that dealt with this matter: http://econlog.econlib.org/archives/2013/11/metaphorical_vo.html

[2] See Unz quoted at point 5 in this earlier post of Bryan’s.: http://econlog.econlib.org/archives/2011/09/unz_on_immigrat.html

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