Fighting Back Against Oligopsony

I was prepared to disagree with Eric Posner’s New York Times op-ed, “You Deserve a Bigger Paycheck. Here’s How You Might Get It.”, on a variety of grounds including how you determine whether higher wages are “deserved” but I found myself agreeing with him materially. He opens by explaining something anyone with a rudimentary knowledge of economics knows: how a labor market with only a single employer (monopsony) or one dominated by just a few employers (oligopsony) will push wages down. Now we get to the good part:

Economists have understood these things since Adam Smith, who famously called wage-fixing by employers “the natural state of things, which nobody ever hears of.” But economists did not take this risk very seriously until recently, instead usually assuming that employers compete vigorously for workers. As a result, though the logic for using antitrust law to address market power is the same for monopsony as it is for monopoly, the legal community did not embrace the possibility that antitrust law should be brought to bear against employers, except in unusual cases.

But in recent years, thanks to the remarkable work of a diverse group of mostly young economists, this conventional wisdom was shattered. Exploiting vast data sets of employment and wages that had become available, they discovered that concentrated labor markets — that is, with one or few employers — are ubiquitous. In one paper, José Azar, Ioana Marinescu, Marshall Steinbaum and Bledi Taska found that more than 60 percent of labor markets exceeded levels of concentration that are regarded as presumptive antitrust problems by the Department of Justice. Numerous papers have made similar findings.

That isn’t just true in technology; it’s true in many sectors. And the consolidation that’s been going on for the last several decades has made it worse. Consolidation has been occurring at a rapid pace in all sorts of sectors, from media to health care. Recently, my wife and I investigated having our backyard fence replaced and, like good little consumers, we started looking for competitive bids. We found that there were far fewer companies to do the job than had been true just 15 years ago: many had been acquired or gone out of business. In many sectors that has been promoted and accelerated by globalization.

Here’s his prescription:

Antitrust law applies to “restraint of trade,” and courts agree that when employers enter cartels to suppress wages, they violate the law. Yet until a few years ago, there were hardly any antitrust cases against employers. The major exception was a 2010 case against Big Tech after Google, Apple and other companies agreed not to solicit one another’s software engineers. This was potentially criminal behavior, but the Justice Department slapped them on the wrist. (A subsequent lawsuit secured more than $400 million in damages for the workers.)

But it was the academic research, not the tech case, that finally woke the antitrust community from its torpor. In the past year, the Justice Department has brought several criminal indictments against employers for antitrust violations (the first ever). The Federal Trade Commission is pondering a rule to restrict noncompetes. State attorneys general brought cases against franchises and other employers that used no-poaching agreements and noncompetes. Congress is holding hearings next week on antitrust and the American worker. Private litigators have joined in as discoveries of abusive wage practices have piled up. For example, “Big Chicken” companies face lawsuits not only for fixing the prices of chicken but also for fixing the wages of their workers.

If the academic research on labor markets is correct, then millions of Americans are paid thousands or even tens of thousands of dollars less than they should be paid. Labor monopsony affects people at all income levels, but it is a particular problem for lower-income workers and people living in stagnant rural and semirural parts of the country.

with which I concur wholeheartedly. Sadly, it won’t be enough. We need to change our trade policies and legal immigration laws as well. Our present approaches are great for the Walmarts, Facebooks, and Amazons but not nearly as good for ordinary people.