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No Monopsony in the Market for Low-Skilled Labor Back Then

My Mercatus Center colleague Jayme Lemke (who earned her PhD in economics from George Mason University) published last year in the journal Public Choice a very nice piece of research titled “Interjurisdictional competition and the Married Women’s Property Acts.”  (This article won the 2017 Gordon Tullock Prize.)

In this article, Jayme explains the timing during the 19th century of U.S. states modernizing their property law – specifically, modernizing this law to enable married women to own, use, and alienate property no differently than could men and unmarried women.  This timing, Jayme shows, is explained by the intensity with which state leaders wished to increase their states’ populations.  A state whose leaders could personally enjoy some significant gains if that state’s population increased was more likely to modernize its property law than a state whose leaders stood to gain less from a population increase.  (My summary here of Jayme’s thesis and of her principal finding do not do justice to her paper.  Do read it yourself.  It’s excellent.)

One of the passages in Jayme’s paper that I found to be especially interesting and germane is the following on pages 302-303:

[O]ne of the practices first implemented by [Massachusetts textile-mill owner Francis Cabot] Lowell and later copied by other industrialists was the active recruitment of young women.  Lowell would pay recruiters to go out into the rural areas of Massachusetts, New Hampshire, and Vermont to find female workers….  The model developed by Lowell came to be copied by aspiring industrialists across the Northeast, and beyond.

More than 150 years ago – when transportation and communication were primitive by the standards of the early 21st century – competition nevertheless drove industrialists to spend significant resources to recruit, from distant places, low-skilled workers.  If profit-hungry industrialists went to such lengths in mid-19th-century America to locate and hire workers from jobs (then, mostly on farms) that paid those workers less than they could earn working for the recruiting industrialists, what sound reason is there to suppose that employers of low-skilled workers in America today generally possess anything that can, without laughing, be called “monopsony power” of such workers?  Answer: none.

Those who assert the existence of such monopsony power do so either because they mistakenly believe that such power exists whenever any employer faces a supply of labor that is less than perfectly elastic (that is, whenever an employer would quickly lose all of his workers of a given sort if that employer cut the pay of those workers by as little as one cent per hour), or because they ignore the active efforts of employers to find and recruit low-skilled workers.  Low-skilled worker Jones currently in job X need not himself have much gumption or stomach for actively searching out new and better employment if employers offering better-paying jobs Y and Z take steps actively to recruit Jones and other such workers.  And employers have every incentive to do such recruiting if and when there are pools of workers who are currently paid less than the value of those workers’ marginal products were those workers instead employed by the recruiting employers.


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