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A Response to EconLog Commenter ‘Nick’

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Dear Nick:

Commenting on this EconLog blog post on the minimum wage [2], you probe my strong doubts that the market for low-skilled workers is monopsonized.  You ask me “Is this a theoretical claim, or an empirical one?  What do you think of the more common argument that low wage employers have market power not because they’re monopsonists but because low wage workers can’t easily search for other jobs because they’re too poor to live off their savings?”

My doubts are empirical: it strikes me as too much of a stretch to suppose that employers of low-skilled workers in the U.S. today have such power in the labor market to justify minimum-wage legislation.  Much can be said, but I’ll keep my remarks brief.

First, Bureau of Labor Statistics data show that nearly half of all workers who earn hourly wages no higher than the federal minimum are under the age of 25, and more than one-fifth of such workers are still in their teens.  Moreover, (according to the BLS) “never-married workers, who tend to be young, were more likely (7 percent) than married workers (2 percent) to earn the federal minimum wage or less.”*  In other words, not only is the typical minimum-wage worker unlikely to have a family to support, he or she is likely also to be supported in part, or potentially, by a family.  Such workers do not fit the profile of people so desperate for their next paychecks that they cannot afford to search for better jobs if they are being exploited in their current ones.

Second, if typical low-wage workers were indeed so desperately poor as your argument suggests, then minimum-wage legislation is an especially dangerous and risky tool to wield on their behalf.  Unless and until the data overwhelmingly, clearly, and with little dispute show that, contrary to standard theoretical predictions, raising the minimum wage does not price some low-wage workers out of their jobs, to use such legislation is to recklessly gamble with the lives of the people you intend to help.  Because, as I’m sure you know, the data are nowhere close to ‘proving’ that minimum-wage legislation does not reduce low-wage workers’ employment opportunities, low-wage workers’ alleged economic desperation is an especially compelling reason to avoid, rather than to enact, higher minimum wages.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

Characteristics of Minimum Wage Workers, 2014 [3] (Washington, DC: Bureau of Labor Statistics), April 2015.

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