Big companies and cartels may have more to do with holding down wages and opportunities for working people than we realize. Welcome to the world of monopsony. Like monopoly, it’s bad for the economy.
Round up the usual suspects in the case of What Hurt the Working Class.
In the presidential campaign, the biggest one was “free trade.” This included jobs moved to Mexico and cheap Chinese imports that destroyed factory jobs here. And to be sure, many American workers were hurt by the trade paradigm of the past 20-plus years.
Others blame globalization more broadly, especially offshoring of jobs. Don’t forget technology. Automation has cost millions of jobs over the decades and the trend could accelerate dramatically.
Something receiving less attention, however, is the rising concentration of industries and the domination of a few powerful corporations.
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In 2014, Nobel laureate economist Paul Krugman wrote in his New York Times column that Amazon “has too much power, and it uses that power in ways that hurt America.”
The context was the battle between the Seattle giant and the publisher Hachette over e-book prices. Krugman worried Amazon could abuse its book-selling power to get its way. The dispute with Hachette was ultimately settled and Amazon was accelerating its move into many more areas than books.
But Krugman introduced many readers to a useful, if tongue-twisting, word that applies to the working-class dilemma: monopsony, where a large buyer controls or dominates a market.
Both monopoly and monopsony can describe enormous corporations that throw their weight around to the detriment of others.
But while monopolies can hurt customers by their power over pricing products, monopsonies affect the economy is a more subtle way. They are dominant buyers and have outsized power over what they buy and how much they are willing to pay.
This gives such a company the power to drive down not only the prices it’s willing to pay for the goods and services of its suppliers and vendors, but also the wages of workers.
The White House Council of Economic Advisers issued a report on the effects in October.
Monopsony, the report concluded, “leads to redistribution from workers to employers.”
It broadens the definition from companies with overwhelming influence in buying products to all giants that have gained wage-setting power in the marketplace. The clout also extends to employer collusion and anti-competitive noncompete agreements.
We got a peek into this in 2010, when the Justice Department went after six big Silicon Valley firms that conspired not to “poach” one another’s talented employees. Four of them, including Apple, Google and Intel, eventually paid $415 million to settle the case.
The conspiracy avoided the corporate burden of having to compete for nearby employees. For workers, it was a lousy deal.
It’s also no doubt only one slice of a much larger problem. For example, earlier this year Comcast’s DreamWorks paid $50 million to resolve another claim over its “gentleman’s agreement” with other animation studios to suppress wages and not seek to hire each other’s employees.
Sexy tech companies get attention. But based on the White House report and the work of other economists, the ability of large employers and cartels to hold down wages and opportunity is widespread.
It is likely a big reason why labor’s share of national income has in recent years been at its lowest level since the measurement began in 1948. And it deserves more study for its contribution to the notable decline in Americans moving for a job — a sign of the dynamism that shows a healthy economy.
When I started working full time more than 40(!) years ago, monopsonies didn’t exist in the American economy outside of professional sports and, in the theories of some economists, school districts. This was one more reason I found abundant opportunities and the ability to move up in my careers — something less available today.
Going after monopolies was a simpler task in President Theodore Roosevelt’s day. What was most required was the political will to enforce the Sherman Act. This broke up the trusts and, after Roosevelt left office, alpha monopoly Standard Oil. The federal government broke up the old AT&T in 1982.
It was less clear-cut in the antitrust action against Microsoft in the 1990s. The nerdiness of the case seemed obscure for many people at the time. Antitrust law had been watered down. The company wasn’t broken up.
On the other hand, the Obama administration was willing to apply antitrust law more vigorously than many of its predecessors. Some big mergers, which would have increased industry concentration, cut jobs and held down wages, were stopped. This policy may see a reversal under the Trump administration.
Going after monopsonies is tougher. They don’t typically jack up prices on consumers. Beyond obvious players such as Amazon and Wal-Mart, identifying monopsony participants can be murky.
Is big a monopsony on its own? Is a cartel, such as the big-four airlines, a de facto monopsony?
Some caution is in order. For example, Amazon unquestionably holds a monopsony in books and increasingly in other retail segments. In its other business lines, it faces tough competition. Also, in Seattle Amazon competes with Microsoft and other companies for the top software talent. On the other hand, in a city such as low-wage Phoenix where Amazon is a big employer with its distribution centers, it probably plays an outsized role in setting wages.
As the White House report stated, more study is needed. And remedies, such as breaking up big companies and large-scale unionization, are even more unlikely in the new political environment.
So, Seattle, take a look in the mirror. Amazon has been very, very good to this city. But what it and similar companies represent are not necessarily good for the economy or beneficial to working people. To Amazon’s credit, it at least hires a large workforce. Some monopsony players don’t even do that.