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Does Paul Krugman Realize That He Just Emasculated the Case for Minimum-Wage Legislation?
Interesting letter to the editor of the NY Times by Don Boudreaux.
"Paul Krugman today unintentionally undermines the case
for the minimum wage. He does so by writing that ”When the economy is
strong, workers are empowered. They can leave if they’re unhappy with
the way they’re being treated and know that they can quickly find a new
job if they are let go. When the economy is weak, however, workers have
a very weak hand, and employers are in a position to work them harder,
pay them less, or both” (“The Fear Economy,” Dec. 27).
In other words, when the economy is strong, competition among
employers ensures that they pay and treat workers well. In economists’
jargon, employers have none of the “monopsony power” that is necessary
for minimum-wage legislation to work. Yet even when the economy is weak
and employers enjoy monopsony power, employers’ ability to work their
employees harder means that a higher minimum wage can be offset by
worsened working conditions. In economists’ jargon, the existence of
monopsony power is a necessary but not a sufficient condition
for minimum-wage legislation to improve the well-being of
low-skilled workers.
To recognize, as Mr. Krugman does, that employers can change how hard
they work their employees is to recognize just how weak is the case for
a higher minimum wage – a case built on the naïve assumption that the
one and only response that employees experience from a higher minimum
wage is to be paid that higher wage.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030"
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