The majority of US workers live in "employment monopsonies" where there is little or no competition for workers

In Labor Market Concentration, a new working paper from economists at U Penn, U Navarra and the Roosevelt Institute, researchers analyze a large US government data-set to determine how many workers live in markets where there is effective only one or two employers, a situation called "monoposony" (when a single buyer has a monopoly).

The researchers find that the majority of US workers live in these markets, where there is no competition for their labor; in these markets, wages are artificially suppressed because employers do not have to bid against each other for the same workers.

This is an important data-point in the ongoing debate about anti-trust and competition in capitalist economies. When the Chicago School economists gutted anti-trust enforcement in the USA, they did so on the basis that the only reason for governments to interfere in markets was when monopolists used their power to raise prices -- but not when they colluded to sabotage new market entrants or suppress new products or services, and certainly not to prevent them from thwarting workers who wanted to get raises. The theory was that labor markets are "naturally competitive" and do not warrant consideration by regulators.

In order to be able to make a stronger, causal claim about the effect of market concentration on wages, we undertake several additional empirical exercises. We instrument for local labor market concentration with the market concentration for the same occupation in other geographic labor markets. The idea is that we want to make sure our results are not driven by local labor demand effects that are reducing both vacancy posting (hence increasing concentration) as well as reducing wages. We also independently measure labor market tightness using the observed ratio of vacancies to applications, since we can see the number of applications to each vacancy in our data. This “soaks up” a large chunk of the observed variation in vacancies, but even so, the market concentration as measured by vacancies is still robustly associated with a reduction in wages.

We also aggregate our data over longer time periods than a single quarter, which understandably reduces concentration—more vacancies, by a larger range of individual firms, are posted the longer you extend the time period. Two things are worth noting, however: the average job search is around 10 weeks, according to Bureau of Labor Statistics (BLS) data, meaning that workers looking for a job are generally in the market for around a quarter; hence, the quarterly concentration is what matters to them in determining how likely they are to receive one or more job offers. This is why it’s more meaningful to look at concentration among job vacancies than among employment. In other words, it may be the case that many firms employ people who do jobs similar to what a job-seeker is looking for, but if only a few firms are actually hiring (and especially if there’s less turnover because the job ladder has deteriorated), then that unconcentrated employment is irrelevant. Second, the rate of establishment churn in the labor market is high—even though it has been on the decline for the last two business cycles. This means that the longer any sample of vacancies is, the more different establishments and firms will be represented—but not necessarily at the same time. Thus, aggregating across time mechanically reduces measured concentration.

Labor Market Concentration [José Azar, Ioana Elena Marinescu and Marshall Steinbaum/SSRN]

How Widespread Is Labor Monopsony? Some New Results Suggest It’s Pervasive. [Marshall Steinbaum/The Roosevelt Institute]

(via Naked Capitalism)