Reining In Employer Monopsony Must Be a Government Priority
April 4, 2022
By Alí Bustamante, Anna N. Smith
The US Department of the Treasury recently issued a report on competition in the labor market that found that employer concentration and anticompetitive labor practices lower worker wages while also driving income inequality and slowing economic growth. The Treasury report supports what the Roosevelt Institute and other researchers have found over the past several years: Employer monopsony is undermining the well-being of Americans. However, there are several tools our government can use to rein in corporations and increase the bargaining power of workers.
Monopsony—the disproportionate labor market power exerted by employers over workers—takes many different forms. But it always results in decreased bargaining power for workers, allowing corporations to pay lower wages, provide fewer benefits, and worsen working conditions.
Roosevelt’s research shows that monopsony is pervasive across industries and locations, as corporate concentration has crowded out competitors and suppressed worker power. With sufficient concentration, or through collusion with other firms, employers actively use their market power to impose barriers to job mobility and transfer costs to workers.
Monopsony power has a discriminatory impact on workers of color, and particularly on Black and brown women; it increases the likelihood of discrimination in hiring, funnels people of color into low-wage jobs, and reduces the ability of marginalized workers to move between jobs. Employers can then obscure their anti-worker practices by pointing to changes in technology and credentials as the main culprits behind wage stagnation, rising inequality, and the erosion of working conditions. Yet the record is clear: Our research shows that inequality in the labor market and the decline of worker power are not adequately explained by a “skills gap,” but rather by increasing monopsony in the labor market.
A tight labor market—characterized by low unemployment and high levels of job switching—serves as a buffer against employer monopsony by increasing the bargaining power of workers as their employment prospects increase. However, relying on a tight labor market for increased worker power cannot alone be the answer. Employer monopsony must be reined in if the labor market is to be rebalanced.
A wide range of government actions can restrain employer monopsony. Key first steps include increased antitrust enforcement and the banning of mandatory arbitration agreements and nondisclosure agreements that diminish labor market competition. Workforce development programs can also reduce employer monopsony power by connecting to multiple employers and increasing worker representation on workforce development boards.
Comprehensive changes that help build worker power are also needed. The weakening of workers’ bargaining power has been a direct consequence of the decline in union density caused by corporate-centered legislation that has created hurdles for collective action. To change this, we need robust labor regulations and protections for workers, such as increased minimum wages, wage boards, and mandated benefits. In addition, legislation that makes unionization and collective bargaining a more feasible option for most Americans is essential.
The recent Treasury report on labor market concentration is an acknowledgement of the insidious effect of corporate concentration on American workers and the economy. Long-standing market inequality disproportionately harms workers with the lowest bargaining power—often people of color and women. Policies aimed to reduce income inequality must therefore confront labor market monopsony. Policymakers must act now and prioritize the reduction of employer monopsony power so that Americans, and America, can prosper.