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Or Maybe the Only Employers With Monopsony Power Are Those Who Employ the Lowest-Skilled Workers

I recently finished reading Jeff Madrick’s new book, Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World.  Because I’ll soon write a review of this book for Barron’s, I’ll not say much about it now here at the Cafe.  Yet just as I couldn’t resist earlier pointing out that Madrick has a very odd understanding of Russian economic history, I can’t resist today pointing out that Madrick unintentionally mentions some evidence in support of the proposition that raising the minimum wage destroys some jobs for low-skilled workers.  (Madrick, you should know, is a staunch advocate of the minimum wage.)

Here’s Madrick writing on pages 208-209 of his Seven Bad Ideas:

And the number of college graduates who now take work once done by high school graduates has increased from about 30 percent to 40 percent since 2000.  This “bumping down” helped keep the unemployment rate of college graduates from rising, but it lowered their wages.

In other words, when workers may offer to work for lower – ‘bumped down’ – wages, they are better assured of getting and keeping jobs (even if not the jobs, and at the wages, that these workers prefer).  Most college graduates – even ones with the lowest GPAs and even those credentialed only in the most impractical majors – have more job skills than do teenagers, high-school dropouts, unskilled immigrants, and other of the lowest-skilled workers in the economy.  So college graduates have legal room to offer to work for wages lower than such graduates received in the past (or what today’s college graduates expect, or hope, to earn upon entering the labor force after graduation).

The lowest-skilled workers in the economy, however, have no such legal room to offer to work for lower wages.  Minimum-wage legislation sees to that.  Currently unemployed low-skilled workers are prohibited by the state from getting jobs by choosing to sell their labor services at hourly rates below the state-stipulated minimum.  And workers currently employed at the minimum wage cannot choose to continue working at that wage if the government raises the minimum wage, even if choosing to work at this lower wage would mean staying employed.  (Where’s the Pro-Choice-and-Keep-Your-Laws-Off-My-Body crowd on this vital human-rights topic?!)

In short, Madrick has no difficulty seeing that if college graduates were unable to offer to work for lower wages that the unemployment rate of such workers would rise.  But he, like so many other “Progressives,” ridicules as ideologically driven and oh-so-unscientific the argument that the inability of the lowest-skilled workers to offer to work for wages lower than the state-stipulated minimum causes the unemployment rate of such workers to rise.

Strange, that.


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