The only economic case for raising the minimum wage that is even potentially theoretically sound is the case built upon the belief that employers of low-skilled workers possess monopsony power in the market for low-skilled workers. (As argued here before, monopsony power is a necessary condition for a higher minimum wage not to reduce the employment prospects of low-skilled workers; it is not a sufficient condition .)
So what are we to make of the City of Los Angeles’s move to raise the hourly minimum wage there to $15 by 2020 ? Why wait until 2020? Why not immediately or, say, on June 1st 2015?
If this minimum-wage hike is truly justified by employer monopsony power, there’s no reason for any delay in hiking the wage. If employers of low-skilled Angelenos truly have monopsony power of the sort that the best pro-minimum-wage economists assert is prevalent enough in reality to justify government-imposd minimum wages – and if government-imposed minimum wages really are ‘scientific’ responses to the prevalence of such monopsony power – then raising the minimum wage in Los Angeles from its current rate of $9 per hour all the way up to its ‘desired’ rate of $15 per hour should be done immediately. Why the gradualism? Why wait five years to raise the wage to its appropriate height? The monopsony power that justifies raising the minimum wage, if it is real, exists today in full. And if $15 per hour is the ‘right’ minimum wage to offset the baneful consequences of employers’ monopsony power, then economic theory is clear that there is nothing to be gained, and only gains for low-skilled workers to be foregone, by any delay in raising the minimum wage to $15 per hour.
Most readers of this blog know – not because they read this blog, but because they exercise economically informed common sense (of the sort, sadly, that is schooled out of too many non-GMU-type academic economists!) – that employers of low-skilled workers (especially those in large cities such as L.A.) have no monopsony power to speak of. Employers certainly don’t have monopsony power in such magnitudes and so generally as to justify a government-imposed minimum wage. So it’s unsurprising to me and, I’m sure, to most of this blog’s readership that L.A.’s massive minimum-wage hike is phased in over five years. This phasing-in not only mutes and, hence, helps to hide, the ill-effects of the minimum wage; more significantly, this phasing-in is solid evidence that minimum-wage hikes are in fact not scientific responses by government to the prevalence of employer monopsony power.
It’s high time that tweedy academic economists stop lending their professional and scientific creds to politicians seeking only cheap applause and valuable votes from the economically uninformed masses (who too readily cheer policies with lovely titles) and kudos and campaign contributions from labor unions and other rent-seekers (who gain financially from government policies that price many of the lowest-skilled and most vulnerable workers out of jobs).