Inspired by Bryan Caplan’s recent posts on labor economics, my colleague Alex Tabarrok chimes in at Marginal Revolution with a truly splendid post on the same. Here’s a slice, but please do read the whole post:
The firm v. worker framing focuses attention on the threat to the worker of unemployment. From this perspective it seems as if the firm can “bargain” the worker down to the least the worker is willing to accept and, given the threat of unemployment, that isn’t much.
The firm versus worker framing, however, obscures a point that Tyler and I make in Modern Principles: Buyers don’t compete against sellers, buyers compete against other buyers (and sellers compete against other sellers). Firms buy labor and they are competing primarily not against workers but against other firms. Firms versus Firms! Now that is a real battle!
When firms are thinking about wages what they are thinking about is the threat from other firms. When a firm is hiring it knows it must pay the worker at least as much as other firms are willing to pay.
Note also the data that that Alex includes near the end of his post on the number of worker quits versus the number of worker layoffs: these data strongly suggest that, at least in the labor market as a whole, no monopsony power exists.
And, on another matter, here’s more insight from Alex.
Celebrating the legacy of the late, great Gordon Tullock.
My GMU Econ colleague Tom Rustici has signed on to lead presidential candidate Ben Carson’s economic team. (I’m assured by reliable sources close to Tom that he, Tom, will not be part of any campaign that endorses the minimum wage.)
