More monopsony madness!

No, no, I know--I have to stop or you just won't be able to stand the excitement. Anyway, Younotsneaky, one of the world's awesomest economics bloggers, does it with math. Meanwhile, in the comments to the Kathy G. post, Tyler Cowen says what I said, better, in one paragraph:

You either think that the demand curve for labor slopes downward at the relevant margin or not. If you don’t think it does, you need to argue for that directly. Arguing that the labor market is not perfectly competitive—while true—does not get you there. And if you admit the demand curve slopes downward you are already very close to Kevin Murphy’s point of view.

Comments

You were right - can't stand it.

...which is the usual 'nominal wage equals the value of marginal product'

Any evidence whatsoever that this is more than just theoretical?

Posted by Amicus | May 12, 2008 11:01 AM

There are lots of exceptions, and no one but a lunatic would argue that the two numbers match exactly. But as a rough approximation, it works well enough.

Posted by Megan McArdle | May 12, 2008 11:09 AM

Look, for all I know that comment you quote from Cowen is a withering and devastating critique of Kathy G's post. But, see, Cowen's point is essentially meaningless when it comes to the question she's actually asking, which is whether the evidence demands that economists should stamp their feet and howl whenever anyone proposes raising a minimum wage anywhere.

When it boils down to it, all parties in this increasingly obscure argument freely admit that the labor market is neither perfectly elastic nor perfectly inelastic. The difference is that Kathy G. is making a cogent argument that there is no real, empirical evidence to suggest that a relatively small minimum wage increase will increase unemployment. Whereas the libertarian economists have an ideological commitment to supporting the absolutist policies suggested by Econ 101 textbook models of supply and demand. And so when others point out that those models don't necessarily reflect the realities of labor markets, you fall back on more sophisticated models that only weakly correlate with your conclusions.

Bait and switch.

It would also be nice if economists behaved like real scientists and employed double-blind methods for their analyses instead of ideologically-driven cherrypicking. But I'd settle for mere intellectual honesty when they enter the political sphere.

Posted by LaFollette Progressive | May 12, 2008 12:56 PM

Thanks.

Posted by notsneaky | May 12, 2008 1:26 PM

The difference is that Kathy G. is making a cogent argument that there is no real, empirical evidence to suggest that a relatively small minimum wage increase will increase unemployment.

By that standard, there's no real, empirical evidence that a relatively small CO2 increase will raise global temperatures. The real-world systems are so noisy the experiments are basically impossible on that scale.

Posted by Mike Earl | May 12, 2008 4:56 PM

Oddly enough, Mike Earl, that's a fair analogy. Or it would be, if we really were seeing only a relatively small increase in CO2 levels. After all, there really are many natural variables that have cyclical effects on global temperature.

But I suspect that a campaign to increase the minimum wage by one-half percent over the rate of inflation each year for many decades, with proponents threatening to up the rate of increase even further in the near future, would raise concerns about negative economic impacts from even the most hardened skeptics of the Chicago School.

Posted by LaFollette Progressive | May 12, 2008 5:38 PM

LaFollette, the bulk of the real, empirical evidence still supports the finding that minimum wages reduce employment; Card and Krueger has no obviously fatal flaws, but it's still an outlier. There is a plausible, if unprovable, argument that this may be due to publication bias, but that's just speculation. You certainly couldn't say there's real, empirical evidence that there will be no-to-positive effects on employment. The results, while ambiguous, still lean the other way.

Posted by Megan McArdle | May 12, 2008 5:49 PM

There are lots of exceptions, and no one but a lunatic would argue that the two numbers match exactly. But as a rough approximation, it works well enough.

Actually, I think it is ludicrous that people continue to rely on this.

I understand why they do - it's hard to formulate 'nice models' without it, for one - but the idea that almost everything is not the exception (or could be one) is probably quite a lot closer to reality.

Put it to the test: I have yet to met anyone who thought they were compensated at their marginal productivity of labor ... except maybe the intentionally unemployed.

I suspect that the best arguments against a 'minimum wage' in today's America have less to do with a theoretical decrease in employment than in a disproportionate burden on certain types of businesses...

Posted by Amicus | May 12, 2008 9:47 PM

"Put it to the test: I have yet to met anyone who thought they were compensated at their marginal productivity of labor ... except maybe the intentionally unemployed."

Your evidence is that the people you know have a high opinion of themselves? I assume you mean that they all think that they are underpaid, not overpaid. But maybe the people you know aren't at the margin.

The argument in favor of employers continuing to hire until the marginal benefit equals the marginal cost is that, otherwise, they're leaving money on the table, since there would be a net benefit to hiring those extra workers. Are you arguing that businesses aren't greedy, and thus are happy to accept lower profits?

Posted by Ann | May 16, 2008 8:35 AM