Monopsony Power?

by Don Boudreaux on June 21, 2014

in Immigration, Myths and Fallacies, Work

I’m having some repair work done at my place.  The lead repairman, Jose, is a voluble immigrant from El Salvador.  Jose told me yesterday that he came to the U.S. in 2000 at the age of 21.  For eight years he worked for a local cement contractor.  He liked his job until, in 2008, the company was sold.  Jose didn’t like the new owner.  Jose, soon after the change in ownership, gave his employer his two-week notice.  The employer immediately offered Jose a raise.  (“It was a really good raise,” Jose conceded.  “But I did not like him.  I told him I was still leaving.”)

Jose’s account of his wife’s work experience in the U.S. is similar.  She worked as a pastry chef at a supermarket in northern Virginia.  When the supermarket began demanding that she work longer hours, she quit and found another job – one that pays as well but has work conditions better suited to this woman’s preferences.

As I listened to Jose’s account of his and his wife’s work experiences in the U.S., I wondered “Where’s the monopsony power that academic proponents of minimum-wage legislation point to in order to justify government prohibitions on low-skilled workers bidding for jobs by offering to work at wages below that which is deemed minimally necessary by the state?”  Neither Jose nor his wife were victims of any monopsonist.

Yes, yes, yes.  I know that two experiences are anecdotes; they are not data.  I get that.  But these anecdotes strike me as being far more consistent, than is the monopsony-power tale, with widely and everyday-observed reality, and with the priors given life by an understanding of economics.  Like countless other immigrants, Jose and his wife emigrated, in search of better lives for themselves, as poor non-English-speaking workers to a country and culture foreign to their own.  (Just think of the courage and gumption involved in such a move!)  Immigrants, such as Jose and his wife, spread out all over the United States; most do not stop in San Diego, CA, or Nogales, AZ, or El Paso, TX, or Miami, FL, and almost none accept and feel tied to the first job offers they get.  They’re incredibly entrepreneurial, hard-working, intelligent, and mobile.

The claim that employers of low-skilled workers have such monopsony power over them that the lot of these workers is generally improved by a government-imposed restriction on their ability to bargain for jobs is too far-fetched to take seriously.

Those in America who accept the monopsony argument as a real-world justification for minimum-wage legislation should talk to the likes of hotel maids in Boston and short-order cooks in Sacramento and lawn-care workers in Louisville and handymen in Fairfax.  Ask them not if they’d like to be paid more.  (Of course they would.)  Ask them not if they support raising the minimum wage.  (I suspect that most of them do, because most of these good people are economically illiterate.)  Ask them not if they’d quit their current jobs if their hourly wages were cut by $0.01.  (Such a standard for monopsony power is textbook-ridiculous.  [Would George Clooney walk off of the set of his next movie if the producer cuts his hourly pay by $0.01?])  Ask them instead how many jobs they’ve held here in the U.S.  Ask them why they left their previous jobs.  Ask them if they have ever been offered higher wages, or better work conditions, and changed employment as a result.  See what you discover.  Don’t try to publish the results as an econometrically sophisticated study.  (It would not be one, at least not without a great deal of refinement and bulking-up.)  But see how such informally gathered information about real-world people affects your understanding of their realities.

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