Lack of competition causes wage declines of roughly 20 percent for workers compared to what they'd otherwise earn in an environment with healthier competition among employers, according to a new report from the Treasury Department that signals federal focus on barriers to labor-market competition.
Stifled wages are but one reported injury from monopsony power, which emerges when a single firm can restrain its hiring to lower wages and boost profits. "Employers also use their market power to impose other costs on workers, including unpredictable just-in-time schedules, punishing work conditions, and no opportunity for advancement," the department states. The report was produced in consultation with the Justice Department, the Labor Department and the Federal Trade Commission.
Here are seven takeaways from the 68-page report, "The State of Labor Market Competition," which can be found in full here.
1. The Treasury defines wage losses relative to the wage "in a perfectly competitive and frictionless environment where workers would be paid a wage equal to the marginal revenue product of labor," according to the report. A worker's marginal revenue product of labor equals the revenue their employer would lose if they were to quit.
2. Wage loss due to monopsony power ranges from 15 to 25 cents on the dollar, with lower-paid workers taking the hardest hit with an estimated loss of 26 cents on the dollar for the bottom quartile of wages.
3. Hospitals are analyzed in the report for the monopsony power gained through consolidation. "When the hospital industry consolidates by closing hospitals, it increases monopsony power mechanically by increasing the cost among nurses to find work elsewhere (i.e., longer commutes)," according to the report. "Even when consolidation does not reduce the number of hospitals (e.g., through a merger of hospital systems) it can increase monopsony power by reducing competition among the remaining firms."
4. Certain types of hospital mergers causally decrease wages for certain healthcare workers, according to the report's citing of research published in the American Economic Review in February 2021. Hospital mergers that cause the largest gains to hospital concentration under the Herfindahl-Hirschman Index, which measures labor market concentration, cause wage growth to slow for skilled workers, nurses and pharmacy workers.
5. The report examines the use of restrictive employment agreements to reduce competition and employee mobility, including no-poach agreements where firms agree not to hire other firms' workers, non-compete agreements that limit employees' ability to switch jobs and non-disclosure agreements that can be so broad they effectively serve as non-compete agreements.
6. Twenty-one percent of workers in the top income quintile are covered by a non-compete agreement compared to 8 percent of workers in the bottom quintile of hourly wages. "Unlike higher income workers, lower wage workers likely lack sufficient bargaining power to refuse a non-compete agreement," according to the report. "As a result, whereas non-compete agreements may increase top-earner wages at the expense of mobility, non-compete agreements appear to reduce both wages and mobility for lower-income earners."
7. The Treasury's report questions the value and need of occupational licensing, noting that its incidence has proliferated since the 1950s, from about 5 percent to around 20 percent of workers by the mid-2010s. The report cites a 2016 report from the Treasury's Office of Economic Policy that found little evidence that marginal changes in occupational licensing typically increase quality, safety or health. "Evidence since then tends to corroborate these findings," the report contends, going on to cite three other studies aligned with its 2016 findings. The Treasury does note that "even if licensing does not objectively increase quality, the perception that it does so may nonetheless impact market outcomes."
The report concludes by saying the Biden administration has supported or is developing the following policy measures to increase labor-market competition:
1. Raising the federal minimum wage to $15 per hour, indexing future increases of the federal minimum wage, phasing out the tipped minimum wage and eliminating the subminimum wage for teen workers and workers with disabilities.
2. Greater antitrust scrutiny from the Justice Department and FTC, including possible updates to their horizontal merger guidelines to better detect and prevent illegal, anticompetitive deals in the labor market.
3. Defense against overuse of non-compete restrictions. President Biden has encouraged FTC Chair Lina M. Khan to exercise the agency's statutory rulemaking authority to curtail the use of non-compete clauses and other clauses that may unfairly curb worker mobility.
4. Greater support for reforms in occupational licensing at the state level, including directing support for workers pursuing occupational licensing and "exploring funding and support" that has proven effective in the adoption of meaningful license reforms.
5. The creation of the Task Force on Worker Organizing and Empowerment, which President Biden established through an executive order. The task force's report to the president was published Feb. 7 with nearly 70 recommended actions for agencies to reduce barriers and promote worker organizing in the private and public sectors.