Tag Archives: Competition law and inequality

The effects of market power over wages

More and more companies have monopoly power over workers’ wages. That’s killing the economy.

By Suresh Naidu, Eric Posner, and Glen Weyl


“For a time, economists believed that labor markets were . . . competitive. But that conventional wisdom was vaporized by a series of empirical studies that suggest that labor market power is real and significant. A number of studies, summarized here, have found, for example, that when wages fall by 1 percent, only about 2 to 3 percent of workers leave, at most.

If labor markets were really competitive, we might expect the figure to be closer to 9 or 10 percent. Other studies have found that employer concentration has been increasing over time and that this concentration is associated with lower wages across labor markets.

. . . .

[G]rowing labor market power may well be a significant explanation of the host of maladies that have beset wealthy countries, notably the United States, in the past few decades: declining growth rates, falling labor share of corporate earnings, rising inequality, falling employment of prime-age men, and persistent and growing government fiscal deficits. It’s remarkable how well labor market power alone can simultaneously explain all these trends.

Many conservative economists blame high taxes for these problems. But inordinately high taxes cannot explain these trends, because tax rates have been cut several times during this period. Nor can globalization and automation. Globalization and automation can help explain why inequality has increased but not why economic growth rates have stagnated: On the contrary, globalization and automation should have increased economic growth (by expanding markets and by reducing the cost of production), not reduced it.”

Read the whole article at Vox

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