Steven C. Salop recommends that the next presidential administration continue to focus competition policy on protecting against adverse labor market outcomes. He suggests several policies the administration might pursue to achieve these benefits.
Editor’s note: This article is part of a symposium that asks how the next presidential administration and its antitrust agencies should reorient competition policy for the next four years. Contributions from Herbert Hovenkamp, John Kwoka, Steven Salop, and Ginger Zhe Jin and Liad Wagman can be read here as they are published in the coming days.
I recommend that the next presidential administration place high priority on anticompetitive conduct by employers and the promotion of increased worker power. There are various such competition policies the next administration might pursue. Whatever is the competition philosophy of the new administration, I hope the administration continues with a “whole-of-government” approach, in which multiple agencies collaborate to mitigate problems such as labor’s decades-long decline in the share of income.
Merger Enforcement
The new administration should continue recent efforts to pay attention to adverse effects of merger and acquisitions on workers. It is clear that anticompetitive buy-side effects in the labor market are sufficient to violate Section 7 of the Clayton Act, as affirmed in the Penguin book publisher case, where the judge found that a merger between two of the big five American publishers would depress author income. The antitrust agencies (the Federal Trade Commission and Department of Justice Antitrust Division) also should recognize that downstream consumer harm occurs when the employers gain dominant bargaining power in wage negotiations (while maintaining discretion over employment), not just when they have classical monopsony power. The Kroger/Albertsons merger case alleges harms to grocery workers, not just consumers. I have written that a relevant labor market composed solely of unionized grocery workers would be supported by direct evidence that there is a union wage differential, a fact issue that is now being litigated.
One priority area for the next administration should be mergers of hospitals or third party payers, which may harm health care workers—doctors, nurses, and technicians. While the 2017 Anthem/Cigna medical insurer merger case focused on consumer harms in insurance markets, the case also analyzed potential upstream market harms in to hospitals. Insurers’ buyer power also can reduce competition for health care workers. Another possible target area involves acquisitions by private equity firms that have track records or plans for dampening competition for workers or taking excessive risks of bankruptcy that may be likely to reduce competition that also injures workers.
Non-Competes and No Poach Agreements
Worker non-competes and no poach agreements have been a bipartisan concern. The Obama DOJ announced that non-compete agreements would be treated as criminal violations. The Trump DOJ settled a complaint involving a no poach agreement between rail equipment suppliers Knorr and Wabtec. The Biden FTC has a rule prohibiting no poach agreements that is now being litigated. While the Biden DOJ complaints have failed on the facts, their deterrent effects likely have been significant.
Regardless of who wins the election, the next administration should continue these efforts in light of this bipartisan support. Consider also the 2023 Seventh Circuit Deslandes v MacDonaldsopinion by conservative Judge Frank Easterbrook and joined by more liberal Judge Diane Wood. Easterbrook’s opinion made it clear that potential benefits to consumers in the downstream product market cannot be used to justify competitive injury to workers in the upstream labor market. The only cognizable justification for such agreements must involve benefits to the workers themselves, for example, increased training that leads to higher wage rates. Contrast this to the 2021 Aya v AMN decision (and others) that treated the effects on downstream consumers as paramount, despite harms to the nurses in the upstream input market.
Easterbrook’s approach is consistent with the origins and proper interpretation of the ancillary restraints doctrine, a doctrine which validates certain restraints in agreements that create procompetitive effects. If for example a baker selling her popular bakery promises not to open a new bakery nearby, the consumers who suffer from the potential loss of future competition are the same consumers who benefit from the transfer of assets to the higher value owner. In resale price maintenance cases, where consumers suffer from the elimination of retail prices competition, the same broad group of consumers gain from the increased services and non-price competition. All parties harmed by these agreements must also benefit, not just some of them.
Easterbrook was not “going rogue” in his opinion. In NCAA v. Alston (2021), the Supreme Court also rejected the claim that downstream consumer benefits might be used to justify upstream worker harm. Indeed, this Supreme Court opinion contained a pin cite to the 1996 Seventh Circuit opinion by Easterbrook in Chicago Professional Sports Ltd. Partnership v. National Basketball Assn. The Alston pin cite opined that ‘‘Just as the ability of McDonald’s franchises to coordinate the release of a new hamburger does not imply their ability to agree on wages for counter workers, so the ability of sports teams to agree on a TV contract need not imply an ability to set wages for players.’’ And Justice Brett Kavanaugh could not have been any clearer. His concurring opinion stated that “[NCAA] traditions alone cannot justify the NCAA’s decision to build a massive money-raising enterprise on the backs of student athletes who are not fairly compensated.”
Countervailing Employers’ Power With Collective Bargaining
The next administration might also advocate for a legislative exemption or new antitrust doctrine to allow collective bargaining by non-unionized employees and independent contractors workers that countervails the power of dominating employers. This proposal would permit workers to form limited joint negotiation entities (JNEs) for the purpose of collectively bargaining with employers who have “monopsony bargaining power,” that is, either classical monopsony power or dominant buyer-side bargaining power. Modern economic analysis shows that this collective bargaining would increase employment (i.e., labor market output) so long as the JNE gains only moderate bargaining power, which occurs when the JNE members are small players, JNE membership is limited, and the JNE is dealing with a dominant counterparty. This increased employment will tend to increase the output produced by the employer and lead to both downward pricing pressure in the downstream output market and increased consumer welfare. Thus, downstream consumers benefit as well as workers. Limiting the size and scope of each JNE, and also restricting the set of permissible counterparty firms with which a JNE may negotiate, ensures that the JNEs themselves do not gain monopoly bargaining power, or cartelize the market. These constraints will also ensure that adequate investment incentives are maintained.
These benefits come at the expense of the dominating monopsony employers, which may lead to political resistance by the Chamber of Commerce. But the JNE exemption should be popular among antitrust commentators. Neoliberals should like the idea that the proposal retains a central focus on consumer welfare. Traditionalists should like the idea that the per se rule is retained for JNEs that do not satisfy the circumscribed permissible conditions. Chicagoans should be relieved by the absence of direct price regulation. Neo-Brandeisians should like the idea that asymmetric economic power is being countervailed.
As a practical matter, JNEs that are limited solely to collectively bargaining wage rates could escape antitrust condemnation through a legislative antitrust exemption for JNEs that meet the requisite conditions, as proposed by Doug Melamed and me. Second, the new administration might promote an interpretation of Section 1 of the Sherman Act that would permit JNEs. I have proposed a “hybrid” Section 1 “quick look” type of standardbased on two factual conditions: On the one hand, if the court finds that (i) the counterparty is a “monopsony employer” (i.e., an employer with classical monopsony power or dominant bargaining power) and (ii) JNE members and the JNE collectively are sufficiently small, such that the JNE likely would achieve only moderate bargaining power (so that output is likely to rise), then the JNE would be summarily permitted without moving to the full rule of reason. On the other hand, if these conditions are not satisfied, then the per se illegality standard would apply, again without moving to the full rule of reason.
If Congress or the courts are not willing to treat the benefits to workers and downstream consumers as the sole focus, they could apply a new rule of reason standard that balances the benefits to consumers and the workers against the harms to the employer firm (i.e., its shareholders) that is intermediary between the workers and the downstream consumers. If this type of multi-market balancing were implemented, income equality would be supported by the approach of applying a discount rate that takes account of the declining marginal utility of income, that is, that a dollar has less consumption value to Jeff Bezos or Mark Zuckerberg than to a middle class worker. Of course, this complex balancing goes far beyond the conventional no-balancing methodology. As an alternative, the legislation might be more willing to permit a JNE of housekeepers to negotiate with a luxury hotel, but not JNEs of hospital CEOs or heart transplant surgeons who want to collectively negotiate salaries with HCA Healthcare.
Another doctrinal approach could allow escape from the per se rule for some JNEs that satisfy the conditions set out in BMI. These include the creation of a superior product or substantially lower costs by efficiently providing other services to the potential employers and workers. Both the justification and lack of market power might be satisfied by a showing that the JNEs would gain only moderate bargaining power, such that employment and output are likely to increase. This might be sufficient under California Dental (1999), despite the apparent broad scope of the earlier Professional Engineers (1978) decision.
To illustrate, consider how this analysis might apply to a case like Superior Court Trial Lawyers Association (1990), in which a group of private practice lawyers who represented indigent defendants decided to strike for higher compensation from the government. The justification for the one-day strike would be that the higher per diem payments would increase the supply of lawyers willing to represent indigent defendants and an associated increase in the quantity (and the likely quality) of those legal services. The fact that the ultimate payer (i.e., the D.C. government) supported the strike would be additional affirmative evidence.
Finally, another even broader approach would have the administration advocate to the courts that Section 6 of the Clayton Act totally exempts labor organizations from antitrust scrutiny. This interpretation was made in 2022 by the First Circuit in the Jinetes case, which involved an agreement among jockeys in Puerto Rico to jointly negotiate with the monopoly race track. While this case has led to significant commentary (e.g., here, here, and here), the decision so far has not led to other potential JNEs forming and taking the approach of petitioning the district court for a declaratory judgment.
Narrowing Multi-Employer Strike Assistance Agreements
Another policy initiative could involve efforts by the antitrust agencies and National Labor Relations Board to strengthen unions. Many private sector unions today have limited bargaining power over employers with monopsony bargaining power. This suggests that greater union power would lead to increased employment and downstream output. (Indeed, if the labor market monopsony employment level is less than monopoly level, then even a union cartel would benefit downstream consumers.) The goals of increasing the welfare of workers and reducing income inequality can be served by policies that increase union bargaining power. Because independent contractors cannot join unions, continued efforts to prevent “misclassification” of workers as independent contractors rather than employees would be useful.
One antitrust policy initiative would be to narrow the ability of employers to use mutual strike assistance agreements (MSAAs) to countervail the bargaining power of unions attempting legally permissible “whipsaw” strikes. These are strikes and picketing of an individual employer that are intended to drive customers to shift to other competing firms whose unionized workers are not striking. Firms sometimes create MSAAs in which these other competing firms who are not facing strikes share their incremental revenue with the firm whose workers are striking, thus reducing that firm’s losses during the strike. It is economically rational for such revenue-sharing agreements also to reduce the cooperating stores’ incentives to compete during a strike—which thereby harms consumers as well as reduces the incentive of the targeted employer to settle the strike by paying higher wages.
For example, such an agreement led to a 141 day strike discussed in the Ninth Circuit’s 2011 California v Safeway case. The Ninth Circuit’s en banc decision held that the MSAA be adjudicated under the full rule of reason rather than condemned under the per se rule or quick look. This conclusion was reached despite treating the agreements as not exempt under the non-statutory antitrust labor exemption. As Judge Stephen Reinhardt’s dissent explained, the majority’s decision was incorrect in that the non-exempt horizontal agreement harmed both workers and consumers during the strike. To the extent that MSAAs also lead to lower wage settlements, workers are further injured. And under the proper interpretation of the ancillary restraints doctrine discussed above, any downstream consumer benefits from lower wages are non-cognizable out-of-market effects.
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Greater focus on competitive harm to workers represents wise competition policy in today’s new Gilded Age. Competition policy should reject big business capture and support a more balanced coalition that places higher weight on the interests of workers and middle class consumers (issues also discussed here and here).
Author Disclosure: Steve Salop is Professor of Economics and Law Emeritus, Georgetown University Law Center and Senior Consultant, Charles River Associates.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
