Suppose it is entirely true that the employers of low-skilled workers have monopsony power over those workers. Maybe low-skilled workers aren’t informed about their other options.
Standard economic analysis would indicate that under such conditions, the minimum wage could increase employment. However, this standard analysis simplifies the labour contract down to two elements: price and quantity. In a more realistic setting, where labour contracts involve more than just the exchange of some quantity of homogeneous labour for some quantity of money, we would expect other elements of the contract to be adjusted in response to a binding minimum wage.
So what does this mean? Well, without the minimum wage, the employer would compensate his workers so as to minimize his costs for any given level of compensation. He would offer a total compensation package such that the marginal cost of adjusting any element of the package would be equal to the marginal benefit to the employee of adjusting that element of the package. This would minimize the employer’s costs. With a binding minimum wage, the employer is obligated to offer a greater proportion of compensation in cash, so the marginal value of adjusting some other elements of the total compensation package must be higher than the marginal cost of doing so (e.g. the employee would forego $1.50 for $1.00 of additional on-the-job training from his employer). Thus it is more costly to offer any given amount of compensation to employees under a binding minimum wage, and even a monopsonist would reduce his employment of low-skilled labourers! Continue reading Monopsony and the Minimum Wage→
Can you imagine a news article with that title? Certainly not. How about this one: Abstaining from alcohol significantly shortens life. There, that’s more sensational, isn’t it? (To be fair, that’s the title on the page, not the title of the article. I’m not sure why they aren’t the same.)
I’ve seen news articles circulating about a recent study from the University of Texas at Austin that followed 1,824 adults between the ages of 55 and 65, and compared how likely they were to die over a 20-year period depending on whether they abstained from drinking alcohol, drank moderately, or drank heavily. The results indicated that moderate drinkers had the greatest longevity, followed by heavy drinkers, with abstainers being the most likely to die.
This is where the science reporters stopped paying attention, and started writing sensationalist “alcohol is good for you!” news articles.