Maybe corporations don’t have enough power

In a context of monopsony power, wages at the top of the spectrum would be held lower. Corporations wouldn’t then voluntarily distribute them to workers with lower wages. But if firms lacked monopoly power, they wouldn’t be able to retain the gains from that. The gains would be captured as consumer surplus by the firms’ customers. In order to be competitive in the market for their goods and services, firms would have to assert their monopsonist power just to remain competitive by transferring those gains to the consumer.

…it does match with a context where more skilled workers were captured by powerful firms and less skilled workers benefit indirectly as consumers.  Maybe labor incomes had less variance because firms back then were more powerful.

That is from Kevin Erdmann.

Comments

File this under: there is no idea so bad that someone won't defend it.

Thanks God(s) for this comment. I was about to rage. Faith in humanity partially restored.

I concur. History and current events tell us, quite clearly, that the opening statement: "In a context of monopsony power, wages at the top of the spectrum would be held lower" is profoundly false. Although, an argument could be made that monopsonist portion of the market is restricted to the lower wage personnel, who would be less mobile. The whole blog post is replete with other questionable assumptions and conclusions. Like this: " Specialization would make high earners more vulnerable to being captured by a few or one corporate buyer of their labor." Except that most specialization is not even industry specific - it is in demand across many firms and industries. Think engineering, IT, etc. A Java programmer can get a job most anywhere. Or a GIS practitioner. Etc.

I'd argue it is harder to prove to an employer that you are a good Java programmer than a good burger flipper. Unemployment duration is likely higher for higher skilled workers, and they likely have greater geographic limitations. McDonalds are in every city in the country.

Ridiculous. Programming skill is easily tested. You can also write code equally well on a beach and in a cubicle. Moreover, other developed nations want American engineers. Macron made a whole speech begging them to come to France. The Emirates highly value American STEM workers.

You can’t say the same about burger flippers. Silicon Valley programmers and engineers will design the robots that will decimate the entire burger flipping profession.

People in the programming profession tell me that their interviewing process is broken (CS trivia, whiteboarding, etc.), so they may take issue with the idea that it is "easily tested"

In programming you want high skill and confidence, but like anywhere else, idiots with high confidence can beat the system.

Straussian comment!

I’m sorry, are you arguing that monopsonists bid wages upward?

That’s your argument?

Are you sure you understand what the post is arguing?

What's the "bad idea" you're referring to?

In a competitive labor market, firms bid up wages until an employee roughly receives the wage that they deserve based on the scarcity of their skills (controlling for many other, but typically less important factors). It's not like firms start out with a "surplus pie," and part of the pie is arbitrarily allocated to either employees or consumers based on market power.

"firms bid up wages until ...." Until the level in the firm where the interests of the firm are taken to be identical to the interests of its cadre of senior management.

Seriously, I'm considering de-listing after this hit my mail box. This post is so far up a theoretical "Econ's" ass that you are creating scenarios from the muck you find there and have lost all bearing on the reality out side the purview of an Econ's ass.

https://www.bls.gov/opub/mlr/2016/book-review/behavioral-economics.htm

I had been thinking Tyler (often) posts garbage to generate clicks and elicit idiotic comments, like mine.

I have to agree that this might be the case. There is a word for it, you know: trolling. Egad, Tyler is a troll.

It's tomorrow already. Some people felt anger in the previous day.

I also studied behavioral economics. Although you linked to a pop science book, I’m giving you the benefit of the doubt. We read Thaler extensively and I admire his work.

Did you have a point at all or is this just straight mood affiliation? Obviously you’re emotional enough about the link to ragepost.

How about a brief refutation based on logic and principles? You know. Logical discourse. Give it a shot.

I don’t think he understands what the original post is arguing! That can be the only possible explanation for linking to Thaler.

Individuals may not contemplate economic rationality in their decision making, that doesn’t mean corporations and markets in aggregate won’t.

Why would you want firms like that, transferring wages from workers to consumers? At best, it's a wash. Use Food Stamps instead! :-)

Now, suppose such a firm also exports. Then it transfers domestic workers wages to foreign consumers. What, is this a desirable policy?

That's an interesting point. And it is true that over this time the trade deficit has grown.

Alas, the trade deficit [current account deficit to be precise] is the difference between domestic Investment and Savings, and, counter-intuitively, has nothing to do with trade policy.

That is true, but isn't there some margin where subsidizing consumption in the way you pointed out would change that balance?

But the lower wage is like a tax, an increase in Savings, so no.

Speaking with David Hume: Methinks we worry too much about the balance of trade. :-)

I'm not worried about it. I just brought it up because it seemed to support your point.

"less skilled workers benefit indirectly as consumers" because of government debt funded programs:

Support for easy credit to low income consumers who will nevr repay the debt.

Debt funded tax refunds to spur consumer spending using easy tax preparer high profit loans for EITC fraud.

Debt funded food, child care, and housing subsidies.

What would happen to GDP if balanced budgets were actually forced across government, corporation, and households.

I grew up in the 50s and 60s when debt was almost as bad as thieving, gambling, birthing a bastard child, and in some cases, murder. Being in debt was worse than lynching a black man or Jew.

How morals have changed in half a century....

Jesus Chr _ st is Cowen a whore for corporations!

Haven't the Kochs paid you enough already? You still have to whore yourself out with these stupid pro-corporate propaganda pieces?

If the Koch brothers were arguing for capitalism and corporations in Laos or North Korea, you’d still call them shills.

I’m just saying....

'you’d still call them shills'

Um, the Koch brothers are capitalists - they aren't shills, they employ shills. Along with lackeys, toadies, flunkies, and lickspittles.

Whether the Kochs have bid up the wages of such people is another discussion, of course.

Lol you’d condemn the capitalists and their shills even if they were preaching in North Korea or Cuba.

It doesn’t matter who the Koch’s employee as shills. All that matters is the argument, which you seem reticent to engage.

Ooooh, tell me what else I'd argue, since you can tell everything about me from one comment.

The major assumption Erdmann makes is that higher income variance is proof that corporations have too little power is false. There is a bifurcation in wages that the executive/management class receives and what everybody else gets. The difference is not just income but also equity, bonus, and certain perks like golden parachutes. This is what drives your variance. Corporate power is a vague term. If corporate power means more executive control and benefits versus the line worker then this means they have plenty of it.

"The way to progress is to have more y combinators. Adding to the already high costs and barriers with new taxes and mandates hardly seems like a helpful response."

99.9% of America has less regulations and lower housing costs than the SF Bay Area but why can't everybody produce their own Y-Combinator? There is something deeper that policy wonks seem to miss when it comes to how business formation actually happens even in the presence of regulations and housing costs (this is not an argument for not building more of course).

New York and Silicon Valley came of age in eras of fairly low regulation. NIMBYISM is a function of wealth. Make the money and then lock out the competition....

As for great capitalist cities in America coming of age in an era of extremely high local, state and federal regulation I can’t really think of any....

I'm not sure I follow. By definition, if the firm is exercising monopsony power, then it is restricting its input purchases. Thus, if the factor is a variable cost at all, the firm's marginal costs must be going up -- either because of inefficient factor substitution or just because expanding output means unrolling part of the monopsony gains (an opportunity cost). Thus, at best there is no change in the downstream output market if it is competitive, but if there is downward sloping demand consumers downstream will be harmed. I don't know of any models where the rents get passed through to downstream consumers, or even what the mechanism would be to make that happen without unrolling the monopsony rents.

Yeah, Tyler was also incoherent some months or a year ago when he analyzed Amazon's possible monopsony power. He seems to have some model of monopsony in mind, that is not a standard model.

Actually the line that bugged me was this one: "But if firms lacked monopoly power, they wouldn’t be able to retain the gains from that."

No, the firms don't need to have monopoly power. What they need to have is monopsony power: access to a factor input that other firms don't have. The monopsonist could be a competitive seller and still profit, indefinitely, from the lower wages or factor prices that it pays.

yes, restricting input purchases (determined by MRP = MFC) is profit-maximizing. This will necessarily entail the monopsonist producing less output (just plug the lower input quantity into the production function).

Whether this results in higher output prices depends on the slope of the firm specific demand curve facing the monopsonist. If it is a price-taker in the output market, no price effect.

It is worth noting that in the developed nations, the employee class no longer reproduces itself.

In Hong Kong, that ballyhooed citadel of free markets, the average woman has 1.2 babies. The birth rate is still declining.

The globalist elites in developed nations say importing workers is the solution, not higher wages, or pro-family policies.

I would say in developed nations the allegiance of the elites to the employee class...well, perhaps we should speak in terms of active hostility...

This is a libertarian website. They will tell you we need more people working not more single welfare moms.

This would work if there were no international trade.

I am not sure where the shirt in wearing now was made, China, Vietnam, or a similar place with low wages. As consumer in another country I enjoy the surplus of low wages. It's already happening, albeit....people around the world worries about the labor conditions of textile workers. Sometimes they're fine, sometimes a sweat shop. What's the point of consumer surpkys if we all work for a sweat shop?

The point is, what mechanism ensures that lower income for skilled workers in one country becomes consumer surplus for lower workers in other country and not just "wealth" managed by a private bank?

I'm sorry, but this is just bad analysis. It may seem counterintuitive, but the monopsonist's marginal costs are higher than a firm wo monopsony power --- the MFC cost curve lies above the supply curve. The monopsonist pays lower wages because it hires less labor -- it is simply at a lower point on the labor supply curve.

What does this mean for output quantities and prices? If the monopsonist is a price-taker in the output market (think of the coal mine owner who has no output market power, but has local monopsony power in the company town), the price of coal is unchanged. The monpsonist sells less coal (compared to a situation where it has no monopsony power) because of its higher marginal cost.

If the monopsonist has some output market power (i.e., a downward sloping firm-specific demand curve), then equilibrium output will fall, and equilibrium price will rise.

This is just the standard theory of monopsony, available in any textbook. Why is it so hard to get it right?

Would pro sports be an example of this. It loos to me like once the owners held all the power and tickets were cheaper and the athletes did not earn so much.

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