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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: 5, Insightful) by JoeMerchant on Friday January 19 2018, @06:01PM
I had a friend who drove big trucks and excavators for a living. He summed up the free market from his perspective very succinctly: "Truck drivers are idiots. They're all out there undercutting each other just to get a job and they cut their profit margins so thin that they end up losing money when anything out of the ordinary costs them extra, and even sometimes when everything goes right." I believe Uber has honed in on this failing in common persons' business sense to take advantage of people who drive their own vehicles for the service. It's all well and good to say "the market will prevail, eventually enough truck/Uber drivers will bankrupt that supply decreases and prices will rise to a sustainable level," but... is it really guaranteed that rates will rise, or will these self-managed businesses continue to create a continuous stream of idiots in default on their debts / bankruptcy? And, who foots the bill for bankruptcies? Everyone else who isn't declaring bankruptcy, that's who.
So, we've got small businesses trying to compete with big businesses on a slanted playing field, and we've also got big businesses taking advantage of independent contractors who don't know any better than to work for free (long term.) It's not surprising at all that the bigger businesses, with surplus manpower and funds, can lobby the legislatures to slant the competitive landscape in their favor.
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