I badly need to find a usable mental model of how employer-side monopsony in labor markets interacts with downward nominal wage rigidity and search and involuntary unemployment. Analyzing just one of these market failures at a time is just not cutting it for me as I try to understand what is going on: Heidi Shierholz and Elise Gould: Why is real wage growth anemic? It’s not because of a skills shortage: "Despite an unemployment rate at 4.1 percent or less since last October, wage growth has been anemic...
...Some have posited that our far-less-than-stellar wage growth right now could be due to workers not having the skills employers need. But that idea has the logic backwards. When employers can’t find workers with the skills they need at the wages they are offering, they will raise wages in order to attract qualified workers.... This fast wage growth for skilled workers should push up average wages, not weigh them down. Since we continue to see anemic average wage growth, not just slow wage growth for select groups of workers, it’s clear that there is not a widespread shortage of the types of workers (i.e., those with the right skills) that employers need.
But we certainly hear widespread employer complaints about not being able to find workers. Why? One reason is monopsony power in the U.S. labor market.... Even though monopsonists would like to hire more workers, the low wages they offer mean they can’t attract more workers unless they pay more. That is, it is a normal state of affairs for a firm with monopsony power to wish they could hire more workers at the wages they are offering, but to be unable to attract additional workers because their wages are too low....
What would be good evidence of a skills shortage? The footprint of a bona fide shortage of workers with certain skills is a low number of available workers with those skills combined with unusually strong wage growth for workers with those skills.... The story doesn’t change when looking by geographic area. We broke down the above table of 22 occupation categories by the nine Census divisions—resulting in 198 occupation/division cells (about as small of cells as CPS sample sizes allow). The scatterplot below shows the unemployment rate and wage growth of these occupation/division cells....
There will always be some occupations in some places where there are not enough workers with the right skills. The key question is whether it is happening at a rate that is cause for thinking that the overall economy really is running hard into labor supply constraints. Right now it’s the opposite situation—and that’s a genuine problem. Remember, while labor shortages may be a negative for firms, they are a clear win for workers, since they lead to wage increases. Right now there is scant legitimate evidence of anything but isolated concerns about scarce labor, but in today’s environment of unusually weak wage growth, somewhat more widespread labor shortages that put upward pressure on wages would in fact be a welcome development...
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