« Paul Krugman: Seduced and Betrayed by Donald Trump | Main | Links for 12-03-16 »

Friday, December 02, 2016

Minimum Wage Increases and Earnings in Low-Wage Jobs

Brad DeLong:

I think I have to change my mind: Back when Card and Krueger first suggested that there was substantial effective monopsony power in the low-wage labor market and thus that there would be no disemployment effect from (modest) increases in the minimum wage to make it binding, I said: "Clever, but nahhh." The reason for their findings, I thought, was that labor demand is just inelastic in the short and perhaps the medium run--but maybe not in the long run.
I confess that I think I have to change my mind. Economists do not fail to find disemployment effects from (modest) increases in the minimum wage that make it binding because labor demand is inelastic and statistical power is insufficient. Employers actually do have substantial monopsony power in the low-wage labor market--even though they shouldn't. And the minimum wage is best thought of as an anti-monopsony rate-regulation policy that raises low-wage employment, raises average low-wage earnings, and brings the market closer to its competitive equilibrium:
Sandra Black, Jason Furman, Laura Giuliano and Wilson Powell: Minimum Wage Increases and Earnings in Low-Wage Jobs ...

    Posted by on Friday, December 2, 2016 at 10:26 AM in Economics, Income Distribution, Market Failure, Unemployment | Permalink  Comments (62)


    Comments

    Feed You can follow this conversation by subscribing to the comment feed for this post.

    -->