Monopoly power is a hot topic of economic debate. Economists are starting to ask whether increasing industrial concentration is choking off productivity growth, reducing capital investment, throttling or deterring would-be entrepreneurs, raising consumer prices and reducing the share of national income flowing to workers.
This is a good and important effort. But it’s also possible that with all the attention being paid to concentration at the industry level, there hasn’t been enough focus on the other end of the monopoly problem: local labor markets.
Monopoly means there’s only one company to sell you products, like broadband services or airline tickets. If there’s only one company, or only a few, they can jack up the prices. But even if this is happening, the effect isn’t that severe. Looking at overall trends, we see that prices for consumer goods such as clothes, furniture, electronics and toys have generally fallen, while the prices of essentials like food, housing and transportation have risen only modestly – it’s health care and education that are driving inflation. But the real problem is the sluggish growth of real wages in recent years.
Economists and policymakers worried about industrial concentration may be focusing too much on the prices companies charge consumers, and not enough on the wages they pay their workers. Higher prices for airline tickets and broadband are annoying, but reductions in real wages are devastating, especially for the working class.
So in addition to monopolies, we need to think about local monopsonies – cases where there’s only one employer, or a few employers, in town. A company doesn’t need to be nationally big in order to be locally dominant – it could be a Wal-Mart branch, but it could just as easily be an independent lumber mill, coal mine or dairy farm.
If a locally dominant employer lowers wages, why don’t the workers just move away? They may be sentimentally attached to their home. They may not have the money to move, or may lack the networks that would allow them to find a job and settle in a new location. Or they may be two-income families that can’t move without finding two new jobs. Whatever the reason, it’s undeniably true that Americans are moving around the country less than they used to. That potentially makes them more vulnerable to wage suppression by employers that dominate the local market.
Recent empirical evidence suggests that these kinds of employers are, in fact, suppressing wages. A new paper by economists Josi Azar, Ioana Marinescu and Marshall Steinbaum analyzes data from the website CareerBuilder.com, breaking down job postings by commuting zone and occupation. They find that for occupations that have fewer employers posting on the website within a commuting zone, wages are lower than for occupations where lots of companies are looking for workers.
That’s consistent with the story that dominant employers are using their market power to hold down wages in areas where workers don’t have many choices. There could be other explanations – for example, towns with few employers tend to have lower wages in general. But Azar et al. control for the level of wages in the surrounding area. They also find that occupations that have only a few employers at the national level tend to have lower wages than other jobs in an area. That rules out most of the obvious alternative explanations for the correlation.
Azar et al.’s evidence is important, but it’s just the first step. Data sources other than one website should be analyzed to see if the pattern holds up. And researchers should investigate whether a merger results in a decrease in wages in areas where that combination reduces the number of employers hiring within a certain field. If mergers do reduce wages by reducing workers’ employment options, that would be the smoking gun, and a firm basis for government action.
But what Azar et al.’s paper shows is that antitrust is a local issue as well as a national one, and that raising wages needs to be a key goal for antitrust policy.
Fortunately, some politicians are already acting. Minnesota congressman Keith Ellison has introduced a bill that would implement annual reviews of big mergers. Ellison’s bill would analyze not just whether the mergers led to higher or lower prices, but also their effect on wages and the local economy. Nor is Ellison alone in his quest – there is an entire antitrust caucus forming in the House. The country is finally waking up to the dangers of market power.
Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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