Slate reports on a new theory for why Americans can’t get a raise:
The paper… argues that, across different cities and different fields, hiring is concentrated among a relatively small number of businesses, which may have given managers the ability to keep wages lower than if there were more companies vying for talent. This is not the same as saying there are simply too many job hunters chasing too few openings—the paper, which is still in an early draft form, is designed to rule out that possibility. Instead, its authors argue that the labor market may be plagued by what economists call a monopsony problem, where a lack of competition among employers gives businesses outsize power over workers, including the ability to tamp down on pay. If the researchers are right, it could have important implications for how we think about antitrust, unions, and the minimum wage….
The team looked at the number of companies advertising jobs [on CareerBuilder.com] in more than two dozen different occupations, from nurses to accountants to telemarketers, in each of the country’s different metro and nonmetro areas between 2010 and 2013. They then calculated local labor market concentration using the awkwardly named Herfindahl-Hirschman Index, or HHI, which antitrust regulators use to analyze the effects of mergers on competition.
What they found was a bit startling. The Department of Justice and Federal Trade Commission consider a market with an HHI score of 2,500 or more to be highly concentrated—if a merger between two wireless companies left that little competition for cell services, for instance, there’s a good chance the government’s lawyers would challenge it. In their paper, the authors find that America’s local labor markets had a whopping average HHI score of 3,157. Employers also tended to advertise lower pay in cities and towns where fewer businesses were posting jobs—suggesting that the lack of competition among companies was letting them suppress pay. According to one of their calculations, moving from the 25th percentile of labor market concentration to the 75th percentile would lower pay in a metro area by 17 percent.