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Quotation of the Day…

… is the concluding paragraph of the labor economist Don Bellante’s excellent 2007 article “The Non Sequitur In the Revival of Monopsony Theory” – an article that I first linked to back in 2013:

Economic analysts sometimes have a tendency to compare the real-world workings of the labor market with the abstract, idealized, friction-free model of perfect competition with its assumption of perfect, costless information and mobility.  That model of perfect competition often serves as a straw man which, when knocked down, serves the purposes of those with an anti-market mentality.  In the case of the new monopsony theory, it is an abstract, highly stylized model, the conclusions of which are based crucially on an improbable assumption, which is compared to the model of a perfectly competitive labor market that is found wanting.  It is an even less meaningful comparison.

As Don explains in his article, the notion that genuine monopsony power, allegedly created by “frictions,” in fact infects real-world markets for low-skilled workers in the U.S. is fantastical.  Reported sightings by some economists of monopsony power are mere visions – theoretical bugaboos – conjured by a combination of a weak grasp of economic theory and failure to appreciate the many dimensions along which competitive forces operate in reality.  Yet this fantastical notion of monopsony power remains in vogue among those economists who wish to support minimum-wage legislation with reasoning that – unlike the completely wrongheaded reasoning offered by the likes of Barack Obama or Robert Reich – warrants an obscure footnote (but no more than that) in a respectable economics text.