Pardon me for here largely repeating what has been said elsewhere about asking those people to put their own money where their mouths are if they allege that today in the United States employers of low-skilled workers have significant monopsony power. My point is epistemological. It is here a way of probing the truth-content of the assertion of monopsony power. It is a means of exploring just how much stock people in general should put in academics’ asserted findings of monopsony power.
As I’ve said in earlier posts, I don’t really expect professors and think-tank researchers to quit their jobs in order to start businesses. Most academics – including myself – are far too lazy, too impractical, too greedy of our own time, and far too chickensh*t to do anything genuinely productive such as start or run (or both) actual business firms. Yet when some of my fellow academics make a claim that, if it is valid, implies the existence of profit opportunities that are easily exploitable by the many people who do have a genuine taste and talent for real-world business, it is incumbent upon the professors, pundits, and think-tank researchers who make this claim to explain why these alleged exploitable opportunities for private profit remain unexploited by real-world business people.
Why do real-world entrepreneurs and business people not exploit these profit opportunities? I know of no credible explanation along these lines. (Remember, the industries in which disproportionately large numbers of low-skilled workers are employed are industries into which entry and exit are relatively easy.)
Pointing out that workers with jobs are reluctant to quit their current jobs because they are so poor fails as an explanation. Such an explanation, of course, is patently absurd insofar as it applies to immigrants who had courage and gumption enough to leave their homes in order to emigrate to the U.S. (“While I had courage and gumption enough to leave my home and family in Guatemala in order to risk moving across the continent to the U.S. – a country in which I did not know beforehand if I’d get a job and in which I do not speak the native language well – I’m too scared to leave my current job at McDonald’s in order to find a better job across town.” That’s just too implausible.) More fundamentally, even if all low-skilled workers are indeed as risk-averse as monopsony-power believers assert, profit-seeking entrepreneurs would move to them in order to offer these workers better employment opportunities if the labor market is such that raising the minimum wage would not reduce the employment prospects of any low-skilled workers.
Because real-world business people consistently do not act to exploit the profit opportunities that monopsony-power believers publicly assert to exist, we have, thereby, excellent evidence that the findings and assertions of the monopsony-power believes are mistaken. Yet the monopsony-power believers, entranced by their econometric findings and their textbook diagrams, continue to insist that monopsony power is real – so real that these believers feel justified to ask government to force low-skilled workers to bear the risk of an ultimate test of whether or not monopsony power is real: the imposition of a minimum wage.
If the monopsony-power believers’ hypothesis is true, low-skilled workers will indeed benefit (assuming that the minimum wage isn’t set too high). But if the monopsony-power believers hypothesis is false, the cost of having acted in the real world on this hypothesis falls upon those low-skilled workers whose employment opportunities shrink; the monopsony-power believers suffer no personal consequences for having subjected innocent people to their mistaken speculations.
So why is it unreasonable to ask monopsony-power believers to put their own money where their mouths are given the devastating consequences that would be suffered by innocent low-skilled workers if the minimum wage is raised because of the mistaken speculative entreaties of the monopsony-power believers? If real-world business people refuse to believe the claims of the monopsony-power believers, why should we demand that politicians – who also risk nothing of their own when they raise the minimum wage – treat the claims of the monopsony-power believers as possessing more truth content than is possessed by the actual, revealed behaviors of real-world business people and by the monopsony-power believers themselves?
What each such monopsony-power believer is telling us is the following: ‘While I’m too unknowledgeable and inexperienced to be trusted to risk my own personal well-being on my hypothesis, I’m sufficiently knowledgeable and experienced to be trusted to risk the personal well-being of other people – who happen in this case to be the poorest workers in the country – on my hypothesis. Trust me!’
What arrogance. What nonsense.
If the monopsony-power believers won’t put up in this case, they should shut up. And if they refuse to shut up, the rest of us ought to treat their claim as being the ultra-cheap and recklessly irresponsible talk that it is.