Employer Power in Labor Markets Further Sidelines Women and People of Color in Today’s Economy

May 15, 2018

Increased monopsony in labor markets has allowed corporations to gain outsized power over individuals, leaving workers with less agency over the choices in their lives. Labor market monopsony refers to the concentration of employers and the resulting power they have to shape labor markets to their advantage. More concentration leads to fewer employers who offer fewer jobs, which gives employers the power to set wages and working conditions on their own terms. As a result, many Americans have less leverage over employers on issues that define their economic security, including compensation and benefits.

This is bad news for workers, but even more so for those already facing structural barriers in the labor market. Women, people of color, and in particular, women of color, face extensive limits on their freedoms and choices due to pervasive structural discrimination. Consequently, these individuals and communities bear compounded negative effects from this economic trend.

First, labor market monopsony can increase the likelihood of discrimination in hiring. When there are fewer jobs, as happens under labor market monopsony, firms have a greater ability to be biased in their hiring choices. For example, take a company that has a preference for a specific demographic and needs to fill five jobs. If only three individuals of that preferred demographic apply, then they must choose from the rest of the applicant pool for the remaining two positions. However, monopsony power in the labor market gives firms more control to dictate their demand for labor. If the company decides to only offer three jobs, they could simply hire the three preferred applicants and disregard everyone else.

Monopsony power also depresses wages, while structural discrimination funnels women and people of color into low-wage jobs. Increased concentration of companies in the past few years led to a 14 percent decrease in wages for posted job listings. Meanwhile, women, people of color, and in particular, women of color are often directed into the lowest paying professions. This means that when increased monopsony leads to lower wages, women and people of color are most hurt. For those earning at the bottom of the income distribution, this can mean that necessities like food and housing become more difficult to afford month to month.

Increased monopsony also affects the ability of workers to move between jobs, especially for Americans who are held back in the economy by their gender, race, or both. When there are fewer job options in the labor market, workers have reduced power to leave work environments where they may face harassment from customers or be vulnerable to employer abuses. A clear example of this is food service workers in the restaurant industry. Restaurant workers, particularly women and women of color, often endure inappropriate behavior from customers, often with no recourse. Decreased job mobility increases the incentive to stay at such a job due to the lack of alternative employment options. Without job mobility, workers can become trapped in hostile workplaces.

Lastly, though recent debate on monopsony in the labor market suggests that workers are less likely to move between local labor markets than economists may predict, it’s important to note that those who do move are those most likely to have the resources to. People and women of color hold substantially less wealth and have less community or family wealth. These individuals also earn some of the lowest incomes. Relocation involves many upfront costs that require savings or assistance from community supports and may simply be prohibitively expensive. With fewer workers unable to consider relocating for work, competition in local labor markets that are available to these groups decreases further.

Increased monopsony power of firms in labor markets is a problem for the bulk of the workforce, but it’s important to consider how demographic groups are differentially affected by this trend. Women, people of color, and women of color are disproportionately in low-wage work and face less competitive labor markets overall. When increased monopsony decreases available jobs, lowers wages, and reduces job mobility for everyone, women, people of color, and women of color face disproportionate constraints in their lives.