Over the past few decades, the US has seen a lot of economic progress in the form of some of the lowest unemployment rates in the country’s history and a booming economy that continues to grow. But underneath the trillions of dollars that go into the economy is a larger problem — the structural power imbalances that exist between employers and their employees. Even though US economic power has reached record heights and employers seem to be hiring more and more, wages haven’t risen at a fraction of the same rate. When people talk about capitalism, and how it isn’t always good for a general population, the thought of the labor market — seemingly free, but with significant measures by employers to limit workers’ power — comes to mind. Economists and researchers have come to the conclusion that a lack of a free labor market has contributed to the stagnating wages.
While it seems like there are thousands of companies and thousands of different places to work, people are increasingly remaining in one commuting zone, rather than branching out to a variety of commuting zones. This means that within their specific industry, they have only a few employers that are within their commuting zone and in an industry that their profession is in. This limits the amount of choice and leverage that a person has over their job choice, and therefore wages. Economists call this “monopsony power,” an interesting term since we learned that “monopsony” means a market structure in which a buyer controls the market of multiple firms. But in this context, it means that employers have enough control that they can pay their workers less than a free market wage, and this effect only worsens in areas with poor unionization and high foreign competition. A 2017 study estimated that employers pay 25 percent less than the free market wage in many areas.
And companies are doing what they can to exert more control. In 2016, just under 60% of employers required their employees to sign “no poaching” contracts, limiting their ability to move companies in pursuit of better wages and preventing them from being hired by a rival company altogether. These contracts further limited the ability for people to change jobs and demand better pay from their employers. Furthermore, on a federal level, Congress has done little to limit no poaching and non compete contracts. While these contracts might be applicable in a case of sensitive information or security, they are currently being abused by companies that employ low age employees. Some states like California have made efforts at the state level to prevent these contracts, but they still happen in states without regulation.
Ultimately, this issue points to a larger issue with US antitrust legislation — the focus on the nebulous monopoly that hasn’t quite manifested itself in an era of strategic oligopolies and unwarranted control by employers in “free markets.” Congress needs to make change, otherwise millions of employees will suffer the consequences.
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https://www.bloomberg.com/opinion/articles/2018-10-21/monopsony-power-holds-u-s-workers-back
Emma, great post! Also, thanks for the comment on my post about the anchoring effect! Your post shines a light on a darker side of the U.S. economy. Behind the glamour and success of U.S. corporations is a highly competitive, and frankly, highly greedy business model. I would agree with your conclusion that corporations need to be regulated, and that wages need to increase. But I also want to know where the money is going. If the companies are growing and the U.S.'s economic power is increasing, the money is there. But if it doesn't reach the workers, where is it going? An obvious answer would be corporate executives and directors, but it doesn't seem conceivable that the hundreds of billions of dollars is going into the salaries of executives. I think part of that money is invested in growing further, and therein lies the question for me. To what extent does the corporation have an obligation to pay its workers increasing wages, and what is that obligation compared to the motivation to increase and grow as a company? It's interesting to see the companies finding their balance between these two things.
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