How the FTC Protects Strong Employers and Targets Weak Workers

Since the 1970s, the US has seen a growing power imbalance between workers and employers. This story was not inevitable, but the product of conscious legal and political choices.

 

 


Editors’ note: In the last few weeks, the Federal Trade Commission has been holding a series of public hearings to discuss whether competition enforcement policies should be updated to better reflect changes in the US economy, namely market concentration and the proliferation of new technologies. The FTC hearings, which will be held throughout the fall and winter, cover topics as varied as privacy and big data, the consumer welfare standard in antitrust and labor market monopsonies. In order to provide ProMarket readers with a better understanding of the debates, we have asked a number of selected participants to share their thoughts on the topics at hand.

 

You can read all previous installments here


 

 

 

One of the major and still under-appreciated trends in American society over the past 40 years is the emergence of a large gap between labor productivity and wage growth. During the postwar era, productivity and wage growth tracked each other quite closely. In a given year, if median labor productivity increased by 4 percent, median wages also increased by approximately 4 percent.

 

Between 1973 and 2017, however, median labor productivity grew 6.2 times faster than median pay. In other words, we have seen a steady increase in productivity, but wages have only grown modestly. Workers have become substantially more productive, but they have been unable to reap the benefits. This is, in large measure, a story of strong employers and weak employees. As significantly different trends in other nations show, this was not inevitable. It was a product of conscious legal and political choices.

 

I would argue that, among others, antitrust enforcers bear some blame for this current power imbalance between workers and employers. First, they bear some responsibility for the strengthening of employers: Most labor markets in the United States are highly concentrated—indeed, according to Azar, Marinescu and Steinbaum, a troubling number of local labor markets are pure monopsonies, leaving affected workers with only one actual or prospective employer. This problem is especially acute in rural and ex-urban areas. Millions of workers, as a result, have few potential places to work and are at the mercy of employers. This concentration has material effects. Relative to a less concentrated labor market, a more concentrated market is associated with 17 percent lower posted wages.

 

The monopsony problem extends behind the confines of discrete labor markets as understood by antitrust enforcers and scholars. Concentration at one level of a supply chain can have ripple effects upstream, to the detriment of workers. For instance, powerful retailers like Amazon or Walmart exercise power over their suppliers and apply downward pressure on input prices. Under the thumb of large retailers, squeezed suppliers, in turn, seek to contain costs by cutting wages and benefits. Recent research by Nathan Wilmers has found that this ripple effect up supply chains explains at least some of the wage stagnation we have seen since the 1970s. Looking more broadly at industrial structure, another study found that high product market concentration increased the share of national output going to profits by “over $1.1 trillion in 2014, or $14 thousand per employee (nearly half of median personal income in the U.S.).”

 

Unfortunately, antitrust enforcers have failed to grapple with this problem. By all appearances, they have assumed that labor markets are generally competitive. For example, a merger has never been stopped solely on labor market grounds.

 

Turning to the other half of the equation, weak employees: most individual workers lack power in labor markets. The unionization rate in the private sector is under 7 percent today. In contrast, during the postwar era, collective bargaining was an important contributor to the egalitarian distribution of income and wealth. In our more recent three-decade period, the big business-led destruction of collective bargaining rights is an important contributor to resurgent inequality.

 

Antitrust enforcers have compounded this problem. They have impeded organizing among an important and growing sector of the labor force, independent contractors, who are estimated to be about 20 million in today’s economy. Unlike workers who are classified as employees, independent contractors are not entitled to an antitrust exemption and legally cannot engage in many forms of collective action. Exploiting this somewhat artificial gap in the scope of the antitrust exemption, the FTC has brought cases against, among others, ice skating coaches, music teachers, public defenders and organists, and has also weighed in against collective bargaining rights for home health aides and ride-sharing drivers.

 

At present, the FTC protects strong employers and targets weak workers. The net effect of the FTC’s actions is to tilt labor market power further in favor of employers. Going forward, I hope the FTC, as well as the DOJ, invert these priorities and target strong employers, including through merger law, and allow all workers to organize.

 

Sandeep Vaheesan is legal director at the Open Markets Institute. He previously served as a regulations counsel at the Consumer Financial Protection Bureau, where he helped develop and draft the first comprehensive federal rule on payday, vehicle title, and high-cost installment loans. 

 

Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy