othermaciej wrote that "In practice this almost never happens". My response was to shows examples where it does happen in practice and so my simple example could not be rejected out of hand. I don't know what "almost never" means for this context. In practice, companies almost never forget to pay overtime to salaried workers. Companies almost never hire child labor. Both are illegal, even though they almost never happen.
"there is nothing preventing Hostess employees from finding alternate employment except the fact that Hostess still pays them more than their next best alternative"
And your point is that it's moral for Hostess to keep cutting wages until people start leaving for other positions?
My argument is all about morality, not economics. How morality is carried out must acknowledge the economics, but economics does not dictate the morality. I argue that there is a cultural expectation that salaries will rarely decrease, and that expectation is part of the cultural morality. The culture expectation exists, because people get a job in part to reduce risk. Otherwise we would all be contractors, and demand a higher income in order to handle the higher risk exposure. But there's a cultural difference in what it means to be an employee and what it means to be a contractor. Perhaps the distinction is that employees also trade loyalty for security, where contractors only trade services for money. I've not thought so deeply about that distinction.
"If your theories about employer monopsony power had any relation to the real world, then we would simply not observe wage stickiness."
You cannot make the observation "we would simply not observe wage stickiness" and conclude there is a lack of employer monopsony power. You have to show that there are no other reasons which can counteract that effect it, even in the face of monopsony.
Other factors may dominate. As an example, suppose a commandment in the Bible were 'employers shall not reduce the wages of their employees.' If the owners of a company followed Christian principles as well as legal ones then you would still observe wage stickiness, despite the lack of a law to that effect. Even if the employees were all non-Christian and don't care about that law per se, and wouldn't protest if the employer didn't follow that religious law.
As a more real-world example, you can't look at Chik-Fil-A and conclude that there's no market for fast-food chicken on Sundays, or that people won't work on Sundays for fast-food chicken stores.
Researching this now, I am expressing basic aspects of the search and matching model. "Jobs in the Search and Matching model are characterized by monopoly rents, due to the matching frictions that give rise to search costs and unemployment," says http://personal.lse.ac.uk/pissarid/papers/WB_ECMA.pdf .
I see that my morality issue is described as a "wage norm" in http://www.tau.ac.il/~yashiv/kl_jme2007.pdf , starting with "We employ a version of Hall’s (2005) notion of a wage norm to introduce real wage rigidity. A wage norm may arise from social convention that constrains wage adjustment for existing and newly hired workers."
I tried to understand their conclusion. It starts off "In a baseline New Keynesian model, labor market frictions render real wage rigidity potentially irrelevant for the dynamics of inflation." and continues "As one component of real marginal costs, wages, becomes less volatile, the other component, hiring and job creation costs, becomes more volatile. The mechanism emphasized by Hall (2005) and Shimer (2005) that helps the search and matching model fit the facts, appears to have a neutralizing effect in sticky price models."
I read the first part as saying that the baseline New Keynesian model isn't affected by real rage rigidity (but you disagree and say it is, correct?) If my interpretation is correct, then this is an area where non-market forces, like wage norms, can be a stronger influence because they don't directly affect the success or failure of the company.
I read the second as saying that the main effect of wage rigidity is the volatility in hiring and job creation costs. How either the dynamics of inflation or the volatility of hiring and job creation costs affects the unemployment level is beyond my understanding, but from what I understand of the paper suggests that what you see as clear evidence - wage stickiness - does not necessarily imply a lack of monopoly.
"But applying it to drivers, machine operators and burger flippers is silly."
I never said it applied to all employees. I say that employment is sometimes not fungible. You seem to both agree (as for an algebraic topologist) and disagree ("there is nothing preventing Hostess employees from finding alternate employment except the fact that Hostess still pays them more than their next best alternative").
When something isn't fungible, then its scarcity affects its price. You can hardly say that that's surprising. In that case, it's easy for an employer (or, yes, employee) to abuse the advantage. The employer's best alternative to giving in to a demand is to fire the person. The likelihood of the company going out of business while it finds a replacement is low. The employee's best alternative to giving in to a demand is to quit. The likelihood of the employee facing tight financial difficulties is higher.
"by this logic, walmart has a monopoly on "low priced goods""
Every time I've said "monopoly" in relation to jobs I've said that the issue is not monopoly but abusing monopoly power. Can you make the case that Walmart is both a monopoly and abuses its monopoly powers?
Microsoft faced monopoly charges not because it was the only supplier of Microsoft products, and primary supplier for the desktop OSes in the world, but because of claims that it abused its monopoly powers. I think the history of unions shows cases where companies have used abused their employment power, and I think the best model is to say that there is either a monopoly or cartel of employers which made that possible.
"if Hostess cuts wages from $40 to $10 and gives up their monopsony power, isn't that a good thing?"
No, because it's a risk management thing. People become employees partially to minimize long-term risk. Giving up their monopsony power (by going out of business) increases employee risk.
I'm fine with monopoly power so long as it isn't abused. I don't want to force a break-up of Microsoft just because they might abuse their monopoly power, because that breakup could be worse for the employer, the employees, and the customers.
A question for you is - do monopolies (or cartels, for that matter) ever abuse their monopoly (or oligopoly) powers? If so, do you use moral guidelines to determine what constitutes abuse?
I ask because I've talked to ardent free economy supporters who believe in no restrictions, not even to prevent monopoly abuse. Yes, even to the point of wanting to allow child labor and indentured servants. Because I believe we must use morality to guide where we want economics to take us, if you don't also believe in moral restraints on the market then this conversation will go nowhere.