Well, doesn’t that just kill the monopsony argument

The argument in favour of raising the minimum wage is that there is monopsony. Employers have market power and so are able to artificially depress wages. If this were true then another employer raising their wage would not filter through to others. Because the others have that market power to not have to do it.

also, if this were true, monopsony, then a rise in wages should be greeted with a rise in employment.

Can we test this? Yes we can:

Between 2014 and 2019, five major national retailers — Amazon, Walmart, Target, CVS, and Costco — implemented company-wide minimum wages. Ellora Derenoncourt, Clemens Noelke, David Weil, and Bledi Taska investigate the impacts of these policies on low-wage workers who are not employed by these firms in Spillover Effects from Voluntary Employer Minimum Wages (NBER Working Paper 29425). They first illustrate their findings using Amazon’s $15 minimum wage, which was announced in October 2018 and took effect that November 1. They then show these patterns generalize to the other large retailer minimum wages.

Utilizing data from approximately 7 million online job postings between February 2014 and February 2020, the researchers find that a 10 percent rise in average Amazon wages is associated with an increase of 2.3 percent in the average advertised wage at non-Amazon firms in the same labor market.

Oh. Wages are determined by the wages on offer elsewhere. That’s standard free market stuff then, no monopsony there.

When large retailers raise minimum wages, there are also small drops in employment. The estimates range from a 0.4 percent to a 1.3 percent decline in employment at firms other than the major retailer when Amazon’s or a similar firm’s minimum wage raises other firms’ wages by 10 percent. These estimated employment effects are comparable to some recent estimates in the minimum wage literature.

Ah, so the monopsony argument is bollocks then.

5 thoughts on “Well, doesn’t that just kill the monopsony argument”

  1. Apart from the fact that I had to look up a definition of Monopsony, isn’t the whole concept a bit of bollocks? It can only apply in a free market. Where the State is the sole customer, does it get to buy warships, aircraft, guns – or even drugs – at a rock bottom price because they are the only consumers? I think that the definition should somehow exclude all monopsonist State fuckwits.

  2. Just try making that point to Krugman or Wrong-Lewis. The current “consensus” is that minimum wages have no impact on employment and the flaws in the key paper that purported to demonstrate this, although widely known, must be ignored. They never go to supermarkets and count the rapidly increasing numbers of self-service tills. Facts are not your friend in this debate

  3. Interesting one I saw last week – Travelodge (cheap British hotel chain) now have those robot vacuum cleaners. Exactly as predicted – minimum wage rises lead to more mechanisation.

  4. @ Excavator Man
    Well, in the short term the state can buy stuff at rock-bottom prices but – except in the Soviet Union and copies thereof (and for a few vocations) – it finds there just aren’t any suppliers. When some of my sisters’ friends (and, earlier, my mother-in-law) became nurses the NHS had a virtual monopsony and they got board and lodging and a little pocket money.
    Private monopsonies tend not to have much success at depressing wages because too many of the youngsters will leave to find a better-paying job: before 1946, the coal-owners were usually monopsonists in the pit villages but the coal-miners were relatively highly-paid (compared to other manual labourers).

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