True or False?
The statement is false. The levels of minimum wages imposed in typical modern economies are always low relative to the average levels of wages. To the extent that monopsony exists at wage levels below the minimum wage, the imposition of that minimum wage will eliminate part or all of the wage reduction due to the monopsony. If the minimum wage is above the socially efficient level of wages in the monopsonistic industry, however, it will reestablish an employment level below the efficient one---whether that employment level will end up below the monopsonistic level cannot be determined without evidence specific to the particular industry. As long as it is above the monopsonistic level, the workers involved will be better off---it has to be roughly above the efficient level by more than the monopsonistic employment level was below the efficient level for the net effect on social efficiency to be negative.
The problem, of course, is that in large part it is the very youngest workers that earn less than the minimum wage. Monopsony power would have to exist for firms that employ such workers. These are the individuals who work in coffee shops, hamburger joints and other low level retail establishments. It is difficult to imagine that firms employing these workers would be individually large enough relative to their industrial markets to face upward sloping supply curves for that low-wage labour. Perhaps these younger workers will face a monopsony situation in small towns in which there are only one or two low-wage retail establishments. In this event there could be a gain from the minimum wage.
But even if there exist in small towns retail firms that possess monopsony power which could be offset by imposing minimum wages, workers throughout the country whose work-effort does not have a value marginal product in excess of the minimum wage will be forced out of employment in industries in which no monopsony power exists. This not only reduces the efficiency of the economic system, but it hurts those very poor people the minimum wage is designed to help, thereby failing to meet the distribution objectives of social policy. While it could be argued that those unemployed by the minimum wage could be given public assistance, a more efficient way of accomplishing these income distribution objectives would be to allow everyone to work for market wages, however low, and support those with insufficient income by giving them appropriate income subsidies at tax time.