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A new research paper that may help unlock the mystery of why Americans can't seem to get a decent raise. Economists have struggled over that question for years now, as wage growth has stagnated and more of the nation's income has shifted from the pockets of workers into the bank accounts of business owners. Since 1979, inflation-adjusted hourly pay is up just 3.41 percent for the middle 20 percent of Americans while labor's overall share of national income has declined sharply since the early 2000s. There are lots of possible explanations for why this is, from long-term factors like the rise of automation and decline of organized labor, to short-term ones, such as the lingering weakness in the job market left over from the great recession. But a recent study by a group of labor economists introduces an interesting theory into the mix: Workers' pay may be lagging because the U.S. is suffering from a shortage of employers.
[...] argues that, across different cities and different fields, hiring is concentrated among a relatively small number of businesses, which may have given managers the ability to keep wages lower than if there were more companies vying for talent. This is not the same as saying there are simply too many job hunters chasing too few openings—the paper, which is still in an early draft form, is designed to rule out that possibility. Instead, its authors argue that the labor market may be plagued by what economists call a monopsony problem, where a lack of competition among employers gives businesses outsize power over workers, including the ability to tamp down on pay. If the researchers are right, it could have important implications for how we think about antitrust, unions, and the minimum wage.
Monopsony is essentially monopoly's quieter, less appreciated twin sibling. A monopolist can fix prices because it's the only seller in the market. The one hospital in a sprawling rural county can charge insurers whatever it likes for emergency room services, for instance, because patients can't go elsewhere. A monopsonist, on the other hand, can pay whatever it likes for labor or supplies, because it's the only company buying or hiring. That remote hospital I just mentioned? It can probably get away with lowballing its nurses on salary, because nobody is out there trying to poach them.
[...] Harvard University labor economist Lawrence Katz told me that he suspected the findings about market concentration and wages were directionally correct but that they may be a bit "overstated," because it's simply hard to control for the health of the labor market.
"They are getting at what is an important and underexplored topic ... using a creative approach of using really rich data," he said. "I don't know if I would take perfectly seriously the exact quantitative estimates."
Still, even if the study is only gesturing in the direction of a real problem, it's a deeply worrisome one. We're living in an era of industry consolidation. That's not going away in the foreseeable future. And workers can't ask for fair pay if there aren't enough businesses out there competing to hire.
Article summarizing study:
Why Is It So Hard for Americans to Get a Decent Raise?
Actual study (limited access): http://www.nber.org/papers/w24147
FYI: Number of companies on America's stock exchanges has decreased by 50% since 1998
(Score: 4, Interesting) by Anonymous Coward on Friday January 19 2018, @04:02PM (1 child)
LOL.
Anyways, a large part of the problem is that he classifications for employer size are ridiculous. I own a small business, I'm the owner/employee, and since I just started it, I had a top line of less than a thousand. But, a small business having over a thousand employees and top line of millions is also classified as a small business.
It's been my belief for some time that here in Seattle we should have learned our lesson after Boeing went through it's part of the downturn back in the '70s and stopped chasing large companies. I'd even go so far as to chase them as far away as possible. We're much better off with small and medium size employers where the city isn't beholden to just one or two firms or industries for maintaining a healthy economy.
As it stands, not only is pay only going up for folks because of minimum wage hikes, but the cost of living is soaring as a small handful of firms grossly overpay employees to come and to make up for the miserable work conditions. They overpay for housing because they can afford it and know that when the leave they'll likely find another sucker to pay at least as much for what they overpaid for in the first place.
Doing similarly at the national level would likely also be a great idea as the customers that create jobs would have more options and likely options that are closer to what they want/need than the current situation and it would be harder for the government to wind up held hostage to a single corporation.
(Score: 4, Insightful) by Thexalon on Friday January 19 2018, @05:28PM
The reason for this is very simple:
1. Politicians create programs designed to make things easier for the mom&pop small businesses out there. For instance, the federal Small Business Administration, which makes it easier for smaller businesses to get government contracts. Republicans in particular like that sort of thing, because they claim to represent small business owners, and they can do it with nice fanfare that makes everyone happy that the local pizzaria will be able to stay afloat.
2. Businesses that almost but don't quite fit the definition of "small business" bribelobby the relevant lobbyists & politicians to change the definition of who qualifies for all those small business programs to include them. The politicians on both sides of the aisle obviously do that with as little attention paid as possible.
The only thing that stops a bad guy with a compiler is a good guy with a compiler.