A surprisingly large number of smart people support raising the minimum wage. In two separate conversations this week with very intelligent people, it was argued to me:
- That there is some research (I once wrote a book review of this) suggesting that labor markets are monopsonistic. And I can draw you a picture of how mandating wage floors in these situations would be employment enhancing over a small range of wage changes. The point here is that due to “frictions” in the labor market, there isn’t much flexibility for workers to change jobs, and so are sort of “locked in” to their jobs.
- If we allow for an increase in the minimum wage, there will be a reduction in employee turnover since the higher wages will make workers happier and also attract better workers.
Now, we can write books and books about each of these claims. But we don’t have to, because both can’t provably be true. Why? Argument 1 says employees have no flexibility in the labor market and that they are so attached to firms and frictions are so high that they can’t or won’t quit. Argument 2 says a major problem for employers of low-wage workers is that their workers are flighty and not committed to the job.
Which is it, if any? In the comments please do not attack either of the claims, there is plenty to say about them, I’m only interested in the consistency.