Alright, folks, listen up! Today's @BV post is a really important one.
We have to change the way we teach people (and the way we think) about labor markets.
bloomberg.com/view/articles/…
We have to change the way we teach people (and the way we think) about labor markets.
bloomberg.com/view/articles/…
The evidence that minimum wage kills either no jobs or very few jobs is starting to look overwhelming. 
Now, a new, even bigger, even better study from the U.S. Census people finds the same. Plus, it finds that minimum wage increases income for the working poor.
Obviously, this is important for minimum wage policy (@NickHanauer will be happy).
But more fundamentally, it's part of a larger pattern of evidence.
Economist's basic, workhorse model of labor markets is failing, failing, failing.
But more fundamentally, it's part of a larger pattern of evidence.
Economist's basic, workhorse model of labor markets is failing, failing, failing.
The first sign that something was wrong with the basic supply-and-demand theory of labor markets was that immigration doesn't hurt wages for native-born workers.
But that wasn't *too* hard to deal with. Just invoke general equilibrium effects.
But that wasn't *too* hard to deal with. Just invoke general equilibrium effects.
But all this new minimum wage evidence is a lot tougher for supply-and-demand theory to deal with.
It sure looks like there's some MARKET POWER in effect.
It sure looks like there's some MARKET POWER in effect.
And guess what?
At least two new papers find direct, convincing evidence of market power in local labor markets. (shoutout to @mioana, @Econ_Marshall, and @joseazar here)
At least two new papers find direct, convincing evidence of market power in local labor markets. (shoutout to @mioana, @Econ_Marshall, and @joseazar here)
I would especially like you to check out this abstract. It really ties a lot of stuff together.
nber.org/papers/w24307
nber.org/papers/w24307
It's hard to escape the conclusion that the supply-and-demand model of labor markets has been falsified.
Or, if you prefer, the supply-and-demand model is proving to be less useful than an oligopsony model in fitting the data on how labor markets work.
Or, if you prefer, the supply-and-demand model is proving to be less useful than an oligopsony model in fitting the data on how labor markets work.
We need to change the textbooks.
Instead of supply-and-demand, we need to start with the monopsony model of labor markets.
Monopsony should be Econ 101 from now on.
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Instead of supply-and-demand, we need to start with the monopsony model of labor markets.
Monopsony should be Econ 101 from now on.
(end)
Note: Teaching monopsony as the basic model of labor markets makes teaching about labor in 101 more interesting! When you just teach the same old supply-and-demand model all over again, it's not just wrong...it's boring!
