In a recent revision of its Premerger Notification Regulation, the FTC removed labor market provisions from the previous draft as Commissioner Melissa Holyoak dismissed them as “a solution in search of a nonexistent problem.” Eric Posner argues that her assessment contradicts a substantial body of academic research showing that labor market concentration is indeed a serious concern.
Earlier this month, the Federal Trade Commission (FTC) issued its revised Premerger Notification Regulation under the Hart-Scott-Rodino Act. This rule requires firms that seek to engage in mergers above certain valuation thresholds to provide information to the FTC and Antitrust Division of the Department of Justice (DOJ) before they consummate the merger. The purpose of the program is to enable the agencies to review and, if necessary, block mergers that may substantially lessen competition under Section 7 of the Clayton Act. Much of the rule involves routine updates, but public attention has been more focused on the fact that the labor-related provisions proposed in the draft regulation had been eliminated in the new revision.
Why were these provisions eliminated? FTC Commissioner Melissa Holyoak provided the clearest answer when she called the labor provisions “a solution in search of a nonexistent problem” in her accompanying statement.As evidence, she cited numerous academic papers, most of them published in peer-reviewed journals or on their way, and nearly all of which show that labor market concentration, or similar frictions in labor markets, is a serious problem. In fact, I am aware of no academic paper that seriously contests the claim that thousands of labor markets are highly concentrated under traditional legal standards. These markets are concentrated enough to warrant, at a minimum, review by the agencies, based on their traditional practice for product markets.
Because of data limitations, a smaller number of papers have addressed the question whether mergers between firms with large shares of a common labor market result in wage reductions. But the major papers that have tackled this issue have all found that these mergers, on average, do reduce wages. For example, a paper on hospital mergers by Elena Prager and Matthew Schmitt, published in the American Economic Review, found that mergers between nearby hospitals slow wage growth of medical professionals but not for employees who do not have hospital-specific skills—demonstrating that the mergers harm workers in concentrated labor markets but not unconcentrated labor markets, as theory predicts. In a long, garbled footnote (note 55), Holyoak mentioned only the finding for the control group of unskilled workers while omitting the headline results, as if Prager and Schmitt had debunked labor antitrust trust rather than confirmed its importance.
That same footnote cited other papers as support that labor market concentration is no worse today than it was in the past while failing to mention that labor market concentration has always been a problem during the entire period for which data are available. During that same period, disregard of the labor market effects of anticompetitive behavior has been a constant feature of government enforcement policy. One of the cited articles, by David Arnold, finds that mergers in highly concentrated labor markets reduce wages significantly, and argues that merger review for labor market effects should occur at the same level as for product markets. Similarly, David Berger and his coauthors, in another paper cited by Holyoak, do not call labor market concentration a nonexistent problem but instead document it in great detail and in a subsequent paper (written with me) call for stricter HHI thresholds for labor market impacts of mergers.
Holyoak also argued that mergers that harm labor markets are outliers, and hence do not justify labor-related information submissions under the premerger program. That argument, too, is contrary to the literature. The paper by Arnold, and other papers written by economists, find a large number of mergers among firms in concentrated labor markets. The Prager and Schmitt article, for example, looks at 84 mergers in their main sample, which covers the years 2000 to 2010, and finds significant declines in wage growth for the average merger in the top quartile. These are mergers in which the post-merger labor market Herfindahl–Hirschman Index (HHI, a measure of concentration) rose to 7,344, with an average change of 2,764—mergers to near-monopoly. Three-quarters of the mergers they examined produced a post-merger HHI above 2,000. No one has explained why mergers with such impacts should be reviewed if product markets are affected but not if labor markets are affected.
Holyoak also seems intent on presenting labor antitrust as a partisan issue. But labor antitrust has been bipartisan for the better part of a decade. Most of the criminal investigations against firms that agreed not to poach each other’s workers were launched during the Trump administration, right after the DOJ and FTC issued their Human Resource Guidance warning of criminal prosecutions in 2016, at the end of the Obama administration. Back in September 2020, the FTC roused itself from its slumber to file a submission in a Texas COPA hearing, in which it objected that the proposed merger between two hospitals in Abilene, Texas, would result in a single employer controlling 92.6% of the market for registered nurses. This was presumably another nonexistent problem, in Holyoak’s view, and yet one that the FTC took action on during a Republican administration.
It is true that the FTC and DOJ have challenged only a few mergers on labor-market grounds since their attention was drawn to the problem toward the end of the 2010s. Holyoak dismisses the successful challenge of the Penguin Random House-Simon & Schuster merger as irrelevant because the workers in that case—authors—were independent contractors rather than employees. This distinction is meaningless in antitrust litigation; indeed, employees are more vulnerable to exploitation than independent contractors because leaving an employer is more difficult than turning away a gig. She also dismisses as an “obscure outlier” the FTC’s labor-market challenge to the merger of Kroger and Albertsons, two of the largest grocery chains in the United States.
But, as noted by the three-commissioner majority, the agencies haven’t challenged many mergers that harm labor markets because merging firms have never been required to submit the information that the agencies needed to identify those mergers. That’s not going to change now or anytime soon, thanks to the FTC’s surrender to corporate interests. This raises a question: Why did the majority of FTC commissioners, who supported the labor market requirements in the draft rule, allow themselves to be outvoted by a minority?
Author Disclosure: the author reports no conflicts of interest. You can read our disclosure policy here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
