From Timothy Taylor, The Conversable Economist, March 15:
Labor markets are in some ways fundamentally different from markets for
goods and services. A job is a relationship, but in general, the worker
needs the relationship to begin and to last more than the employer
does/ John
Bates Clark , probably the most eminent American economist of his time,
put it this way in his 1907 book, Essentials of Economic Theory
"In the making of the wages contract the individual laborer is at a
disadvantage. He has something which he must sell and which his employer
is not obliged to take, since he [that is, the employer] can reject
single men with impunity. ... A period of idleness may increase this
disability to any extent. The vender of anything which must be sold at
once is like a starving man pawning his coat—he must take whatever is
offered."
In the last few years, an idea has emerged that the same government
agencies that are supposed to be concerned about monopoly power--that
is, when dominant firms in an industry can take advantage of the lack of
competition to raise the prices paid by consumers--should also be
concerned about "monopsony" power--that is, when dominant firms in an
industry can take advantage of the lack of competition to reduce the
wages paid to workers. Eric
A. Posner, Glen Weyl and Suresh Naidu offer a useful overview of this
line of thought in "Antitrust Remedies for Labor Market Power," published in the Harvard Law Review.
(132 Harv. L. Rev. 536, December 2018). My own sense is that their
discussion of the power imbalance in labor markets is fully persuasive,
but it also seems to me that antitrust is at most a very partial and
incomplete way of addressing these issues.
Here's a nice explanation from Posner, Weyl, and Naidu of why workers
have reason to feel vulnerable to the monopsony power of employers in
labor markets (footnotes omitted):
But there is reason to believe that labor markets are more vulnerable to
monopsony than products markets are to monopoly, thanks to a different
literature in economics. This literature, for which Professors Lloyd
Shapley and Alvin Roth were awarded the Nobel Prize, emphasizes the
importance of matching for labor markets.The key point is that in labor
markets, unlike in product markets, the preferences of both sides of the
market affect whether a transaction is desirable.
Compare buying a car in the product market and searching for a job. Both
are important, high-stakes choices that are taken with care. However,
there is a crucial difference. In a car sale, only the buyer cares about
the identity, nature, and features of the product in question — the
car. The seller cares nothing about the buyer or (in most cases) what
the buyer plans do with the car. In employment, the employer cares about
the identity and characteristics of the employee and the employee cares
about the identity and characteristics of the employer. Complexity runs
in both directions rather than in one. Employers search for employees
who are not just qualified, but also who possess skills and personality
that are a good match to the culture and needs of that employer. At the
same time, employees are looking for an employer with a workplace and
working conditions that are a good match for their needs, preferences,
and family situation. Only when these two sets of preferences and
requirements “match” will a hire be made.....MORE
...To what extent might antitrust be a remedy for these kinds of issues?
There are certainly situations where it seems appropriate. For example,
the authors discuss "the revelation that high-profile Silicon Valley
tech firms, including Apple and Google, entered nopoaching agreements,
in which they agreed not to hire each other’s employees. This type of
horizontal agreement is a clear violation of the Sherman Act....
Labor markets are indeed profoundly different from markets in goods and services, and not just in terms of monopsony.
