Employer practices limit workers' choices and wages, U.S. study argues
The recent narrative is that there is a tight labor market that gives workers leverage. But a new report from the Biden administration argues that the deck is still stacked against workers, reducing their ability to move from one employer to another and hurting their pay.
The report, released last week by the Treasury Department, contends that employers often face little competition for their workers, allowing them to pay substantially less than they would otherwise.
“There is a recognition that the idea of a competitive labor market is a fiction,” said Ben Harris, assistant Treasury secretary in the office of economic policy, which prepared the report. “This is a sea change in economics.”
The report follows up on a promise made by President Joe Biden last summer when he issued an executive order directing his administration to address excessive concentration in the market for work.
Drawing from recent economic research, the report concludes that lack of competition in the job market costs workers, on average, 15% to 25% of what they might otherwise make. And it emphasizes that the administration will deploy the tools at its disposal to restore competition in the market for work.
“This is the administration declaring where it is on the enforcement of antitrust in labor markets,” Tim Wu, a special assistant to the president for technology and competition policy on the National Economic Council, said in an interview in which he laid out the report's findings. “It is sending a strong signal about the direction in which antitrust enforcement and policy is going.”
Across the economy, wage gains generally come about when a worker changes jobs or has a credible offer from outside that will encourage the current employer to provide an increase, argues Betsey Stevenson, a professor of economics at the University of Michigan who was on President Barack Obama's Council of Economic Advisers.
“Companies are well aware of this,” she said, so they rally around a simple solution: “If we just stop competing, it will be better for everybody.”
The Treasury report lays out the many ways in which employers do this. There are noncompete agreements that bar workers from moving to a competitor, and nondisclosure agreements that keep them from sharing information about wages and working conditions — critical information for workers to understand their options. Some companies make nopoaching deals.
“There is a long list of insidious efforts to take power out of the hands of workers and seize it for employers' gain,” said Seth Harris, deputy director at the National Economic Council and deputy assistant to the president for labor and the economy.
This is happening against a backdrop of broad economic changes that are hemming in the options of many workers, especially at the bottom end of the job market.
The outsourcing of work to contractors — think of the janitors, cafeteria workers and security guards employed by enormous specialist companies, not by the companies they clean, feed and protect — reduces the options for low-wage workers, the report argues.
The mergers and acquisitions that have consolidated hospitals, nursing homes, food processing companies and other industries have also reduced competition for workers, the study says, curtailing their ability to seek better jobs.
The report notes, for instance, that mergers trimmed the number of hospitals in the United States to 6,093 in 2021, from 7,156 in 1975. It cites research into how some of these mergers have depressed the wage growth for nurses, pharmacy employees and other health workers.
The Treasury's document is drawn from a body of research that has been growing since the 1990s, when a seminal paper by David Card and Alan B. Krueger found that raising the minimum wage did not necessarily reduce employment and could even produce more jobs.
The conclusion by Card and Krueger, which economists would consider impossible in a competitive labor market in which rising labor costs would reduce employer demand, started the discipline down a path to investigate the extent to which employers competed for workers. If a few employers had the power to hold wages below the competitive equilibrium, raising the wage floor might draw more workers in.
Lack of competition, the Biden administration argues, goes a long way to explain why pay for a large share of the U.S. workforce is barely higher, after accounting for inflation, than it was a half-century ago. “The fact that workers are getting less than they used to is a longstanding problem,” Stevenson, who was not involved in the Treasury report, noted.