Low-skilled labor markets are not about bargaining power

I am intrigued by this recent paper (pdf) by Jeffrey Clemens at UCSD (visiting UT Austin), here is part of the abstract:

Institutions-centric counterfactuals, which emphasize weaknesses in workers’ bargaining positions, predict that this period’s minimum wage increases would have significantly increased the number of low-skilled individuals with wage rates near or below the minimum wage. The data are inconsistent with this prediction. By contrast, counterfactuals that emphasize the effects of trade, technology, and other competitive market forces are able to match long-run employment changes. My framework highlights that the minimum wage’s effects evolve with labor market conditions. In addition to their relatively direct effects, labor replacing developments in trade and technology exacerbate the minimum wage’s effects on employment. Importantly, this observation holds whether labor markets are competitive or subject to significant bargaining frictions at baseline.

If bargaining power shifts against you because supply and demand factors have changed, that cannot always usefully be undone by a hike in the minimum wage.  Here is a key observation:

I find that the fraction of individuals with wage rates near or below the minimum wage changed little from 2002 to 2014 in spite of substantial minimum wage increases and stagnant nominal wages within low-skilled groups.

More generally, he finds that “…the employment and wage rates of low experience, low education individuals deteriorated more dramatically during the Great Recession than is widely recognized.”  There are many points of interest in this paper, one of my favorite of this year.  Here is the home page of Jeffrey Clemens.


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