The Economics of Day Laboring as a Monopsony

Day labor, a form of contingent work that is available daily with no assurance of future employment or job security, is a critical segment of the United States’ labor market and domestic informal economy. Around 117,600 individuals in the U.S. are either competing for day labor jobs or employed as day laborers on any given day and 83 percent of which rely on this activity as their sole source of income. Foreign-born and minoritized workers are overrepresented among the prospective laborers looking for work next to open-air roadside markets, at busy street corners, in front of hardware stores, as well as in other public spaces.

The Covid-19 pandemic has increased the vulnerability of marginalized groups and exacerbated the competition for the day laborers who live and struggle in the margins of the informal market for construction jobs. For example on the morning of Labor Day, Paulino Ramos, a low-wage 53-year-old day laborer sat outside a Home Depot in Los Angeles, hunched over in pain; another worker standing in the parking lot took him to the emergency room where he shortly thereafter died from Covid-19. Without sick pay per the labor condition of informality, Ramos faced pressure to show up and look for work even when he was feeling unwell.

To understand the hyper-competitive and unstable environments typical to day laboring, an examination of the hiring sites as a revolving door of short-term monopsonist labor markets is first necessary. A monopsony refers to a market where there is only a single buyer of goods, services, and factors of production like labor. These firms are thus price setters in the factors market through the control of output, where the buyers are firms, the sellers are day laborers, and the good refers to the time and effort of labor. Monopsonist labor markets are operationalized in this context by workers’ vulnerability (like documentation status) and high transaction costs (as only 21 percent of day laborers search for jobs at worker centers).

Workers’ vulnerability is evident in the discrimination and exploitation of undocumented workers. While the U.S. Department of Labor mandates employers to pay day laborers at the federal and state minimum wage and service these “hours worked” in advance with the necessary record keeping for overtime pay, securing these protections affects a worker’s employability. Because employability is determined in a short period of time by only one buyer (employer), the monopsonist characteristics of worker exploitation with a wage set below the monopsonist’s marginal revenue product are observed under the first-order condition.

What’s more, ethnographic work conducted by Dr. Carolyn Pinedo-Turnovsky shows how African American men and Latino immigrant men compete for work at a Brooklyn street intersection; the men communicate their set of skills and willingness to work for a lower wage through “price signals”. To improve their chances of being hired, day laborers wear national soccer jerseys to distinguish foreign-born Latino men who are most often undocumented and hold less bargaining power from the other laborers. Spatially, because not all workers are necessarily in direct opposition with one another, foreign-born Latino men also tend to stand closer to other foreign-born Latino men as segmentation of laborers by their vulnerabilities (like documentation status) allows for the implementation of a wage rigidity for all men.

Wage rigidity exists mostly based on a reservation income level (based on a collective understanding of workers’ needs). While workers tend to be informed about wages of workers employed elsewhere, the transaction costs of transportation and entry into the networks of laborers at other hiring sites, tends to keep workers tied to the buyers hiring in their “home” environment. Through this analysis, it is evident how the volatility of informality and monopsonist characteristics of contractors may have placed pressure on Paulino Ramos to look for work.

For the most part, local governments have focused on targeting policies that improve worker protections, increase enforcement of workplace safety conditions, and access to legal services (to report and mitigate rights violations) in order to respond to the problems and abuses of the day labor market. At the macroeconomic level, the main policy recommendations are formalization and immigration reform. However, an understanding of hiring sites for day laborers as a revolving door of short-term monopsonist labor markets, rather than as true labor auctions, suggests other insights about a worker’s union and a minimum wage under formalization.

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