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Ever Hear The Phrase
“Monopsony Power”?
It’s a slick trick that corporate America employs to suppress wages, says new report

March 02, 2018

By Rex D. Cain

(NATIONAL) – There was a little noticed piece in the New York Times earlier this week that every working stiff should probably read, if said stiff wants to understand the lay of the land in the job market these days.

However, given the unending drama and chaos in the White House – will little Ivanka and little Jared leave daddy's chaotic White House nest? Will Trump fire Jeff Sessions? Is Kelly and/or McMaster on the way out? - it’s easy to see how that Times piece got lost in the news cycle.

The highlights of that Op-Ed piece by Eric Posner and Alan B. Krueger are worth noting. Both men are college professors and authors who write books about the economy and capitalism.

They start off with the observation that even after eight years of economic recovery and steady private-sector job growth, “wages for most Americans have hardly budged.”

And the interesting thing about that is, there’s a growing body of evidence that “pins much of the blame on a specific culprit."

The culprit? It’s called “monopsony power.” That’s a term economists use to refer to the ability of an employer to “suppress wages below the efficient or perfectly competitive level of compensation.”

Here’s how it works, they say:

~ In the more familiar case of a monopoly, a large seller — like a cable company — is able to demand high prices for lousy service because buyers (all of us consumer schmucks) have no other choice.

~ But forget prices for a minute. Think wages for this monopsony power thing. It so happens that many (big) corporations own the bargaining power for wages over their workers, not just pricing over their customers.

~ Their workers accept low wages and substandard working conditions because few alternative job opportunities exist for them or because switching jobs is costly. In other words, in the labor market, effectively a small number of employers are competing for their labor.

~ And the monopsony power that makes this possible is “frequently created through non-compete clauses and no-poaching agreements” (between corporations) and is aimed at the most vulnerable workers.

~ For example, they say employers like Jimmy John’s have discovered that “they can control and intimidate workers by putting terms in their contracts that limit their ability to find new jobs even after they leave their old one. Jimmy John’s discontinued this practice in response to public outcry and litigation, but non compete clauses remain ubiquitous.”

~ And this part of the puzzle should shock you. In the past, non-competes had always been used for high-priced, top-tier, rare talent that you don't want going off to the corporation next door with your secrets. Hot shots at high-tech outfits who make HUGE money, for example, are almost always expected to sign non-competes. But there’s a new study by the Brookings Institution’s Hamilton Project that shows “one in five workers with a high school education or less” are now subject to a non-compete and a “quarter of all workers are covered by a non-compete agreement with their current employer or a past one.”

~ And just as mind-blowing, “Over half of major franchises forbid their franchisees from competing for one another’s workers, up from 36 percent in 1996. Businesses have also discovered that they can push down labor costs by outsourcing work. Because outsourcing companies may have greater labor market power than the original firms, they can reduce workers’ wages.”

~ “For a long time, economists believed that labor-market monopsony rarely existed, at least outside old-fashioned company towns where a single factory employs most of the residents. But in recent decades, several compelling studies have revealed that monopsony is omnipresent. Professionals like doctors and nurses, workers in factories and meat processing plants, and sandwich makers and other low-skill workers earn far less — thousands of dollars less — than they would if employers did not dominate labor markets.”

~ “The studies show that common features of the labor market give enormous bargaining advantages to employers. Because most people sink roots in their communities, they are reluctant to quit their job and move to a job that is far away. Because workplaces differ in terms of their location and conditions, people have trouble comparing them, which means that one cannot easily “comparison shop” for jobs. And thanks to a wave of consolidation, industries are increasingly dominated by a small number of huge companies, which means that workers have fewer choices among employers in their area.”

Bottom line? The authors find that when employers exercise monopsonistic power, wages are suppressed, jobs are left unfilled, and economic growth suffers. Unions used to be able to offset employer monopsony power, but unions now represent only 7 percent of private sector workers, down from a peak of 35 percent in the 1950s

And all of the above is pretty much for openers on the subject. So, if you’re a working class stiff in today's seemingly rigged job market, you owe it to yourself to read this one all the way down .

At least you’ll have a handle on why you’re losing thousands of dollars in wages each year.



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