A reader asked me to comment on the issue, raised by the President’s economist Jason Furman, that labor markets are monopsonistic. I do not have much to add to other blogosphere comments, but here goes:

1. Just to clarify, a monopsonist in the labor market is an employer who can set wages below a competitive rate, because its workers have no other potential employers.

2. Suppose that we accept as true the finding by Richard Freeman that the highest wages are paid at the most profitable firms. If there is a monopsony story there, I do not see how to tell it. A monopsonist would exploit its workers by paying low wages, so I would expect that if monopsony were prevalent then we would see the highest wages paid to the least profitable firms (the ones who are competitive in the labor market and cannot exploit their workers). I think that to account for Freeman’s results, you either have to say that the most profitable firms have monopoly power in the markets for their output, and they share some of the rents with their workers, or you have to be like me and be skeptical of Freeman’s ability to measure the true productivity of various workers.

3. If you have some government policy to force employers to pay higher wages, this only helps increase labor’s share if the demand for labor is inelastic. Even if firms have monopsony power, that does not necessarily make their labor demand inelastic.

4. One way for government to make workers better off would be to decouple health insurance from employment, while replacing Obamacare.

5. Another way for government to make workers better off would be to reduce the payroll tax and cut spending by a corresponding amount.