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Quotation of the Day…

… is from page 232 of the original edition of the late Wesleyan University economic historian Stanley Lebergott’s 1964 volume, Manpower in Economic Growth (footnotes deleted; ellipses original to Legergott):

The record is a litany of failure of employer attempts to keep wage costs down by importing labor. In 1828 the Chesapeake and Ohio Canal Company sent agents to Belfast and Cork, to the Upper Rhine, and to Liverpool. It hired workers well below prevailing rates. But a year later the company president was forced to report that while “the rise of wages of labor was for some time controlled, and for a few months sensibly reduced by the importation of those laborers and artificers from Europe … difficulties of enforcing under existing laws the obligations of the emigrants and of preserving among them due subordination” made it unlikely that the company could again rely on such methods to restrict wage increases.

In 1849 an Englishman warned those hopefuls who planned to bring their own mechanics with them when they emigrated to Texas: They would find them tempted away by “the high wages and abundant demand for labor”; contracts would fail to hold them since they “have so many means of escape.”

DBx: This historical reality is evidence against the truth of claims that employers in 21st-century America widely enjoy monopsony power over their workers.

If in early and mid 19th-century America – and, notably, even outside of big cities – workers could easily switch employers, it’s highly unlikely that workers in 21st-century America are so welded to their current employers that the latter can be accurately described as possessing monopsony power over labor. Communications and transportation are today far less costly and much more speedy than they were in the 19th century – thus making workers more knowledgable about alternative opportunities and better able to seize these opportunities. Also, because today’s general levels of prosperity are much higher than in the past, workers today are better able than were their counterparts in the 19th century to risk long periods of unemployment as they search for new jobs.

The key to good job opportunities is not the monopolization of labor provided by government-backed labor unions. The labor-union model raises the wages of some workers at the greater expense of other workers. The key, instead, is more opportunities. And more opportunities for workers are created when entrepreneurs and investors are better able to create new businesses and expand existing ones.

Twenty-first century America features more legal restrictions than did 19th-century America on creating new businesses. (These restrictions should be removed.) But the negative consequences of these government-imposed restrictions are almost certainly swamped by the pro-business-creation (and, hence, worker-opportunity creation) consequences of more-efficient capital markets along with improved communications and transportation.

It’s also true – as my esteemed colleague Bryan Caplan will point out – that a huge drag today on the American economy are land-use regulations which restrict access to housing, and especially housing for lower and middle-income Americans. These government interventions hamper workers’ abilities to change employment. But it seems highly unlikely that the difficulties of moving from one location to another in search of new employment opportunities are today even as great as, and much less greater than, were the difficulties of moving in 19th-century America.

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