Fighting monopsony, a lack of competition that harms workers Ioana Marinescu University of Pennsylvania & NBER Harvard Law, June 2018 Ioana Marinescu, UPenn & NBER Fighting monopsony Harvard Law, June 2018 1 / 9
Labor market concentration Product market is concentrated when a few companies realize most of the sales, e.g. mobile telecom. Labor market is concentrated when most jobs are held by just a few companies. Economic theory predicts that product market concentration (monopoly) increases prices and labor market concentration (monopsony) decreases wages. The Herfindahl-Hirschman Index (HHI) in market m and year-quarter t is HHI m,t = 10, 000 J j=1 s 2 j,m,t where s j,m is the market share of firm j s vacancies in market m. Ioana Marinescu, UPenn & NBER Fighting monopsony Harvard Law, June 2018 2 / 9
Legal significance of labor market concentration Antitrust agencies horizontal merger guidelines (Department of Justice / Federal Trade Commission, 2010). FTC/DOJ: an HHI above 1500 is moderately concentrated, and above 2500 is highly concentrated. A merger that increases the HHI by more than 200 points, leading to a highly concentrated market is presumed likely to increase market power. The same HHI threshold applies to seller and buyer power, hence relevant for the labor market. Define a labor market by a combination of occupation, commuting zone and quarter: e.g. accountants and auditors in Boston in the first quarter of 2016. Ioana Marinescu, UPenn & NBER Fighting monopsony Harvard Law, June 2018 3 / 9
The majority of US labor markets are highly concentrated HHI Concentration Category Very High (5000-10000) High (2500-5000) Moderate (1500-2500) Low (0-1500) No data From Azar, Marinescu, Steibaum and Taska (2018), using 2016 data from Burning Glass Technologies. Ioana Marinescu, UPenn & NBER Fighting monopsony Harvard Law, June 2018 4/9
Higher concentration is associated with lower wages Log Real Wage 10.3 10.4 10.5 10.6 10.7-4 -3-2 -1 0 Log HHI (Vacancies) From Azar, Marinescu, and Steibaum (2017), using data from CareerBuilder.com. After controlling for many factors, we find that a 10% higher HHI is associated with 0.4% to 1.5% lower posted wages. Ioana Marinescu, UPenn & NBER Fighting monopsony Harvard Law, June 2018 5 / 9
Merger analysis Labor market concentration has increased since 1977 (Benmelech, Bergman, and Kim 2018). Antitrust enforcement that is sensitive to anticompetitive effects in the labor market may have limited this trend. Hovenkamp and Marinescu (2018) discuss how labor market effects can be incorporated in a merger review. Following the Horizontal Merger Guidelines 2010: a merger that increases the labor market HHI by more than 200 points, leading to a highly concentrated market is presumed likely to increase market power. Given high labor market concentration, many mergers could be affected. Ioana Marinescu, UPenn & NBER Fighting monopsony Harvard Law, June 2018 6 / 9
Anti-poaching agreements Agreements by companies not to poach each other s workers are unlawful and contribute to increasing labor market concentration by limiting workers opportunities. Anti-poaching agreement shows that two companies compete for workers in the same market, and that collusion is profitable. Anti-poaching agreement is evidence that a merger will likely lead to anti-competitive wage suppression. Ioana Marinescu, UPenn & NBER Fighting monopsony Harvard Law, June 2018 7 / 9
Non-competition agreements Non-competition agreements limit workers opportunities to work for a company s competitors after they leave their employer. Non-competition agreements increase labor market concentration by limiting the number of employers who can effectively compete for workers. Non-competition agreements should be added to other factors mentioned in the Merger Guidelines as affecting the significance of a given concentration level. Ioana Marinescu, UPenn & NBER Fighting monopsony Harvard Law, June 2018 8 / 9
Conclusion Labor market concentration is high, and has been on the rise. Labor market concentration is associated with lower wages. Antitrust enforcement can readily take into account anticompetitive effects in the labor market. Ioana Marinescu, UPenn & NBER Fighting monopsony Harvard Law, June 2018 9 / 9