There's one other point I meant to make in response to Megan : yes, there's no denying that there is huge turnover in the retail and fast food sectors. In fact, based on research I've done in the low-wage sector, I strongly believe that employers want it that way, and structure the jobs there accordingly (mainly by deskilling them).
But high turnover rates are not evidence that monopoly power does not exist. As Alan Manning says in his book (on page 13), "the level of labor turnover is irrelevant: the issue is the sensitivity of labor turnover rates to the wage." The perfect competition model assumes that workers are so wage-sensitive that if a firm cuts their wages by one cent, all of the workers will quit. But empirical studies of the subject show that, while the labor supply to firms is elastic, contrary to the perfect competition model, it's not infinitely elastic.
Yikes. This is a straw man: the choice is not between models of perfect competition and monopsony models to declare a "winner." That's actually quite silly, as nobody, not even those dastardly econ Ph.D.'s (I'm one, UCSD) who wrongly think that more and more government intervention will (further) muck things up. No one is making that particular model selection choice, nor does anyone think it's a good idea.
But here's an observation: return to first principles--not econ 101, but rational thought--and observe that your claim that monopsony models are the best way to explain the link between minimum wages and employment relies on refuting the underlying idea that raising the price of labor will incent (make?) employers to hire fewer workers. You can trot out as many models as you like but you'll still be left explaining why rational McD's managers would do that. (The answer, of course, is that they don't--remember when a human hand held the cup for soda filling. Any idea why that's an automatic spigot now?)
Posted by: JB | April 30, 2008 at 02:12 PM