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The Real Evidence

Aaron the Aaron writes back:

Your complaint fails about scholars who find monopsony power not starting their own firms [to take advantage of the profit opportunities that such scholars identify in markets where entry isn’t obstructed]. You admit that scholars have no skills to run businesses, [so] why do you think their not putting their money where their mouths are proves they are insincere?

I don’t claim that such scholars are insincere.  I claim, instead, that such scholars are engaged in cheap talk.  In their hearts they almost surely do sincerely believe that monopsony power is rampant in the market for low-skilled labor, but because these scholars have nothing at stake in holding that belief, they hold it, I submit, too thoughtlessly, too carelessly, too blithely.  My calling upon them to put their money where their mouths are is not meant to actually prompt them to start businesses.  Rather, my aim is to prompt the more thoughtful amongst them to re-consider their conclusion and, more importantly, to expose them to the public as engaging in cheap talk that they can, but don’t, give evidence is anything but cheap talk.

A person can much more easily hold a belief sincerely if it is cheap for that person to hold that belief sincerely than if that person has something at stake in holding that belief sincerely.

But of course, the real real-world evidence that I point to whenever I urge those who assert the existence of monopsony power to put up or shut up is the failure of the true experts and specialists – actual entrepreneurs and business owners and executives – to take steps to seize the profits that the monopsony-obsessed scholars insist exist.  While nothing much might be proved by the failure of a monopsony-power-asserting college professor or graduate student to start a business to seize the asserted available profits, a great deal is proved by the failure of real-world business people to enter markets even more vigorously when such markets are alleged by some academic to be hotbeds of monopsony power.

Entry in the United States into retailing, restaurants, lawn-care, house- and office-cleaning, and other industries that employ disproportionately large numbers of low-skilled workers is generally quite open and easy.  So if the experts – those who are specialized in spotting and seizing profit opportunities – consistently act in ways that are inconsistent with the empirical claims of non-expert scholars (who, it is true, are not specialized in spotting and seizing profit opportunities), such failure-to-act on the part of the experts is powerful empirical evidence against the claims of the academics who insist that real and relevant monopsony power is such a problem that government is justified in enforcing minimum-wage legislation.


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