Eric Posner's Book "How Antitrust Failed Workers" Reviewed in Boston Review
Competition Is Not the Cure
A little less than a decade ago, after spending several years as a union staffer helping workers organize in low-wage industries, I was assigned to conduct research in support of fast food workers on strike for a $15 minimum wage and a union. It was exciting; workers were making bold demands on some of the most powerful corporations in the country, including a wage increase to double the current level of the Federal minimum wage. Too bold, in fact, for many. Democratic policymakers balked at $15. And with rare exceptions, the entire academic economics profession was opposed. Economists argued that if we forced employers to pay higher wages, they would simply hire fewer workers. A famous liberal economist even wrote a New York Times op-ed opposing $15. However, the Fight for $15 largely sidestepped the debates, so important to economists, about whether higher minimum wages would result in zero or nonzero job loss. Instead, it articulated a social vision of worker rights: workers had the right to the dignity of a living wage—their living in poverty was intolerable in a rich society.
Then a funny thing happened. Ignoring the experts, cities started passing $15 hourly minimum wage ordinances, and the economic sky didn’t fall. Unemployment didn’t skyrocket, or even rise perceptibly. The economists were wrong. Intellectually honest if initially mistaken, economists looked for theories that would better reflect reality, and a previously out-of-fashion theory known as “monopsony” became the new reigning conventional wisdom. Some economists realized they had made a mistake in assuming that labor markets were competitive, meaning wages were set by impersonal forces of supply and demand. According to these “perfect competition” models, employers had no power over wages: if they tried to cut salaries, all their workers would quit. Under the previously assumed competitive conditions, employers competed vigorously for workers, bidding up wages until the pay rate just equaled the amount of value workers contribute to their employer (their “marginal product”). Under these conditions, employers already paid workers as much as they could afford to, with no room to raise wages. Legislated minimum wages, as the Fight for $15 called for, would just force them to lay off staff.
However, economists now understand that labor markets are generally not competitive: workers are not particularly mobile between employers for a variety of reasons (for example, it’s costly to search for a job and workers value non-wage aspects of the workplace), and in many cases labor markets are highly concentrated. Because of these factors, workers are rather limited in their choice of employer, and employers have some latitude to unilaterally set wages. The role of market concentration in contributing to monopsony power is important because it implicates lax enforcement of antitrust law as one cause of wage suppression. The antitrust establishment, which had until recently largely ignored labor market issues, began to take notice.
It is in this environment of shifting conventional wisdom that Eric A. Posner’s How Antitrust Failed Workers arrives. Posner, a professor at the University of Chicago School of Law, expertly lays out the theory of monopsony, explains the harms of monopsonsized labor markets (lower wages, higher prices, and slower growth), and offers numerous ways antitrust can do better by workers. Workers and worker advocates interested in learning more about monopsony and the basics of antitrust law will find the book informative and useful.
Read more at Boston Review