Tweet

Here’s a letter to the New York Times:

You report that higher minimum-wage rates in Oregon, Washington State, and Nevada prompt many Idahoans to quit jobs in their home state in order to take higher-wage jobs in these nearby states – jobs that these low-wage workers living in Idaho drive long distances to perform (“Crossing Borders and Changing Lives, Lured by Higher State Minimum Wages,” Feb. 16). Despite failing to ask if Oregonian, Washingtonian, and Nevadan workers with even fewer skills are displaced by the migrating Idahoans, your report nevertheless offers strong evidence that the most analytically sophisticated economic theory used to justify minimum-wage legislation does not apply in reality.

That theory requires that employers have ‘monopsony power’ over their low-skilled workers. If monopsony power exists, workers are stuck in their current jobs. Employers can then keep wages artificially low without causing their workers to quit. And yet as you report, not only do many low-skilled workers quit lower-paying jobs for higher-paying ones, they do so even if those higher-paying jobs are located many miles away.

This fact is powerful evidence that monopsony power does not infect labor markets – and, hence, that the economic theory used to argue that minimum-wage legislation does not much reduce employment is far weaker than its enthusiasts suppose it to be.

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​