Eric Posner Writes on Antitrust’s Labor Market Problem

Antitrust’s Labor Market Problem

Three years ago, I wrote in these pages that antitrust had a labor market problem, arguing that the FTC should focus on labor monopsony. Indeed, this problem is the subject of my new book, How Antitrust Failed Workers. As I have pointed out, there is a vast gap in antitrust litigation oriented toward product markets (lots) and labor markets (hardly any), while no reason as a matter of theory or evidence to believe that anticompetitive behavior occurs more frequently in product markets than in labor markets. That gap had hardly even been noticed or commented on in the past, confirming Adam Smith’s observation that employer collusion is ubiquitous but invisible. But the veil of invisibility has been lifted in recent years by several studies that reveal that labor markets are frequently highly concentrated and that employers use anticompetitive methods to suppress wages. And in the last couple years, antitrust law has taken some steps to catch up with labor market cartelization—baby steps, to be sure, and not enough. But progress nonetheless.

Markets are central to all modern economies, and markets enhance well-being only when they are competitive. Antitrust law has long stood as the bulwark against anticompetitive behavior by cartels, monopolists, and other product-market bullies, keeping prices low and output high. For reasons lost to history, however, antitrust law has rarely been used against labor-market bullies like employer cartels and labor monopsonists. This means that any rational, profit-maximizing firm will look for opportunities to cartelize labor markets where the sheriff dozes, while treading cautiously in product markets where the sheriff keeps a watchful eye. So while antitrust law forces firms to charge low prices in some instances, the wages from which consumers pay those prices may be suppressed by the monopsonistic behavior of the same firms. Theory suggests that weak antitrust enforcement may help account for labor’s low share of economic output, inequality between investors and people who depend on wages, and economic stagnation, though empirical work on these questions is ongoing.

When I wrote in 2018, some then-recent working papers (now published), including studies by José Azar, Ioana Marinescu, and Marshall Steinbaum and by Efraim Benmelech, Nittai K. Bergman, and Hyunseob Kim, revealed that many thousands of labor markets were extremely concentrated. Evan Starr and various coauthors showed that anticompetitive covenants not to be compete were far more common than people had realized, while Alan Krueger and Orley Ashenfelter found that brand-name franchises like McDonald’s frequently employ no-poaching agreements. More recent studies have confirmed these findings using various datasets and methods. Elena Prager and Matt Schmitt, for instance, examined hospital mergers and found that when hospitals merge in concentrated labor markets, wage increases decline for medical professionals but not for hospital workers with opportunities outside hospitals (for example, cafeteria workers). A multitude of follow-up studies have found consistent results.

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