The trend can explain slow growth, “missing” workers, and stagnant salaries.
By Suresh Naidu, Eric Posner, and Glen Weyl Apr 6, 2018, 9:50am EDT
Our current economic expansion has lasted almost nine years, yet wages have hardly budged, especially for less skilled workers. Inflation-adjusted wages for the average worker have risen only by 3 percent since the 1970s — and have actually declined for the bottom fifth.
For a long time, the conventional wisdom was that wage growth had slowed because of rising competition from low-paid workers in foreign countries (globalization), as well as the replacement of workers with machinery, including robots (automation). But in recent years, economists have discovered another source: the growth of the labor market power of employers — namely, their power to dictate, and hence suppress, wages.
This new wisdom has displaced a longstanding assumption among economists that labor markets are competitive. In a competitive labor market, employers must vie for workers; they try to lure workers from other firms by offering them more generous compensation. As employers bid for workers, wages and benefits rise. An employer gains by hiring a worker whenever the worker’s wage is less than the revenue the worker will generate for the employer; for this reason, the process of competition among employers for workers ought to result in workers receiving a substantial portion of the output they contribute to.
And as the economy grows over time — which has historically been the case in the United States — this dynamic should naturally lead to a steady increase in compensation for workers.
It turns out, however, that labor markets are often uncompetitive: Employers have the power to hold down wages by a host of methods and for numerous reasons. And new academic studies suggest the markets have been growing ever more uncompetitive over time.
The return of the “company town,” in different form
The company town is a familiar historical example of a situation in which employers hold all the cards when it comes to setting wages. In the late 19th century, companies like Pullman, a manufacturer of sleeping cars for trains, established such towns adjacent to their factories, even providing housing and collecting rent. Since such towns had one employer, the workers couldn’t leave for better pay without uprooting their families, which they tended not to want to do.
Few company towns exist today. Still, a variation of the company town effect exists in some regions, at least for certain occupations. A nurse or doctor who lives in a small town or rural area can choose only among a handful of medical institutions within driving distance of his or her home, for example.
And in many areas of rural America, the best jobs are in chicken processing plants, private prisons, agribusinesses, and other large-scale employers that dominate their local economies. Workers can either choose to take the jobs on offer or incur the turmoil of moving elsewhere. Companies can and do take advantage of this leverage.
Yet another source of labor market power are so-called noncompete agreements, which are far more prevalent than many Americans realize. These agreements prohibit workers who leave a job from working for a competitor of their former employer.
Almost a quarter of all workers report that their current employer or a former employer forced them to sign a noncompete clause. (Jimmy John’s, the sandwich franchise, famously asked its “sandwich artists” to sign covenants forbidding them from taking jobs with Jimmy John’s competitors.) Relatedly, Apple and several other high-tech firms were caught entering into collusive “no poach” agreements so they didn’t have to worry about losing engineers to each other, and settled with the Justice Department.
But the practice continues in many sectors of the economy — including fast-food franchises. No-poaching agreements, like noncompete clauses, enhance employers’ labor market power by depriving workers of the threat to quit if wages fall or stagnate.
There are other, more subtle, ways that employers gain labor market power. Different employers offer different working hours, leave policies, and workplace conditions, and workers tend to choose employers whose conditions suit their personal and family situations. If such an employer cuts wages, a worker may be unwilling to move to another employer that asks her to work different hours — or to be on call during “off” hours.
Developing a specific set of skills can be a double-edged sword too, opening doors yet limiting mobility. An expert welder working for the only manufacturer in town may not find it easy to leave that job and find an equally well-paying job (in, say, nursing) because the skill sets are so different.
The “match” problem is exacerbated by the time and energy that job searches demand; it can be hard to hold a job while also seeking a job. This factor, too, gives employers the power to hold down worker wages without fear of losing too many workers.
Unions and regulation once kept employers’ labor market power in check
While employers have taken advantage of labor market power throughout modern economic history, a worldwide social movement at the end of the 19th century moderated the worst excesses. Workers organized labor unions, which enabled them to oppose employers’ market power with the threat to shut down plants. A powerful legal regime was put in place that supported unions and protected workers with health, safety, minimum wage, and maximum-hour regulations.
Read more
https://www.vox.com/the-big-idea/2018/4/6/17204808/wages-employers-workers-monopsony-growth-stagnation-inequality
No comments:
Post a Comment