Thread by @Noahpinion

1/Today in @bopinion, @MichaelRStrain and I debate the virtues of Econ 101.

bloomberg.com/opinion/articl…

2/Econ 101 *classes* certainly have some issues. But when people say "Econ 101" in op-ed columns or casual discussion, what they usually mean is just one thing -- the theory of supply-and-demand.

3/In addition to supply-and-demand, any good Econ 101 class will teach the theory of monopsony power.
tutor2u.net/economics/refe…

But there are people running around out there who say that "Econ 101" tells us that minimum wage kills jobs.

4/I claim that supply-and-demand - the thing most people casually refer to as "Econ 101" - isn't a good theory of labor markets.

Michael says it is.

5/As evidence, Michael cites a 2014 David Autor paper, which claims that supply-and-demand explains the college wage premium.
economics.mit.edu/files/11554

6/Now, I love David Autor, but this paper doesn't actually identify the demand for educated labor. Instead, it proxies for it with a time trend. Which means it assumes that supply-and-demand is the right theory, instead of testing alternative theories.

7/Also, the supply-and-demand model that people learn in Econ 101 should apply to low-wage labor. Yet our best evidence shows that job losses from minimum wage hikes tend to be startlingly small, or even zero on average.

8/Research using the best data and the most credible statistical methods -- for example, this paper by @kevinrinz and @john_voorheis -- shows that labor markets don't respond to minimum wage the way supply-and-demand would predict.

census.gov/content/dam/Ce…

9/And there's mounting evidence that monopsony power is a major factor in labor markets, and that this is why minimum wage hikes aren't as bad for employment as the so-called "Econ 101" theory would predict.

nber.org/papers/w26101

10/To counter this evidence, Michael cites a CBO literature review that concludes that minimum wage does kill jobs.
cbo.gov/system/files/2…

11/Michael also cites a paper of his own, with Jeffrey Clemens, as evidence that minimum wage kills jobs.

onlinelibrary.wiley.com/doi/abs/10.111…

12/But I am unpersuaded.

First of all, the CBO literature review includes a lot of old and outdated studies. The newer and better ones look much much better for minimum wage.

bloomberg.com/opinion/articl…

13/Second, Michael's own paper seems to support the theory of monopsony power, instead of the so-called "Econ 101" theory of supply-and-demand!

14/Michael asks: If monopsony power is a good theory of the labor market, should we expect small minimum wage increases to increase employment?

Well...yeah, that's basically what his own paper finds, so...yeah.

15/Michael notes that monopsony power theory predicts that large minimum wage increases do kill some jobs (though fewer than supply-and-demand predicts).

Well...yeah, that is true! A theory that didn't predict job loss from a $1000/hr minimum wage would be a silly theory indeed.

16/I say: If one theory (supply-and-demand) clearly doesn't explain labor markets, and another theory (monopsony power) explains them a lot better, we probably need to start referring to monopsony power theory as "Econ 101", instead of supply-and-demand!

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