Mergers That Monopolize Labor Should Not Pass Go

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Scholars argue that courts could interpret the Clayton Act to prevent mergers that result in lowering wages.

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Central to minimum wage debates in the United States is the fact that inflation has risen while the legal minimum hourly wage has remained the same at $7.25. Empirical evidence confirms that labor’s share of overall economic output has declined significantly over the past several decades.

Although labor’s slice of the pie has declined in recent years, antitrust enforcement could help workers earn a better living, argue professors Ioana Marinescu and Herbert Hovenkamp of the University of Pennsylvania in a recent article.

Historically, courts and regulatory agencies have scrutinized mergers of companies by their potential to monopolize markets for the goods and services they sell and then to charge higher prices to consumers. In some circumstances, however, companies with large market shares can effectively monopolize what they buy. They can use market buying power to slash the costs of running a business—such as labor—while still selling their products at the same price.

This latter type of consolidation is known as a “monopsony.” This phenomenon occurs when a large company substantially dominates the buying side of a market and uses its dominance to drive down the price of inputs it needs to operate. For example, a tech company could reduce both the price of computer parts and also the “price” of a software engineer by paying her less. Because of this buying power, the software engineer has limited choice but to sell her labor at an artificially low price or risk not selling at all.

The Supreme Court has ruled that traditional antitrust principles governing monopolies apply equally to monopsonies, but Marinescu and Hovenkamp are among the first scholars to argue that driving down the price of labor, rather than products, could constitute an abuse of monopsony power in violation of Section 7 of the Clayton Act—an antitrust statute that seeks to prevent anticompetitive behavior in its infancy.

They point out that most sections of the Clayton Act distinguish between selling and buying, but Section 7—the provision regulating mergers—makes no such distinction. Section 7 states that a merger violates antitrust law if “the effect of such acquisition may be substantially to lessen competition.” Marinescu and Hovenkamp argue that a merger that concentrates the labor market and forces wages and salaries below the market rate would meet this definition.

But it remains to be seen whether courts will accept Marinescu and Hovenkamp’s argument. Marinescu and Hovenkamp themselves note that “no court has ever condemned a merger because of its anticompetitive effects in labor markets,” leaving the question unanswered.

Congress wrote antitrust statutes, including the Clayton Act, broadly out of fear that these statutes might stifle innovation and efficiency. As a result, almost all antitrust principles come from judicial interpretation of these barebone statutes. To date, no court has definitively expanded antitrust law’s coverage of buying power to include power over labor markets.

In addition, Marinescu and Hovenkamp note the major criticism that antitrust laws should not include the impact on the labor market because people almost always have a high number of job opportunities. Under this criticism, the existence of better employment opportunities in a labor market will almost inevitably undermine a merger’s immediate effect on wages and salaries.

But Marinescu and Hovenkamp offer empirical evidence to demonstrate that, despite increased opportunities for employment, the U.S. labor markets are too concentrated to see any meaningful growth in wages.

Using the Herfindahl-Hirschman index (HHI)—a widely accepted measure of market concentration—Marinescu and Hovenkamp find that over half of all U.S. labor markets have an HHI greater than 2,500. The U.S. Department of Justice categorizes a score above 2,500 as “highly concentrated” and one that raises “significant competitive concerns.”

Furthermore, wages decline when greater labor market concentration exists, note Marinescu and Hovenkamp. They recognize that some of their critics could argue that this research merely shows correlation and not causation. So, to prove causation, they look at how changes in concentration within a single labor market affects wages over time. They still find that wages decrease when market concentration increases.

Notwithstanding such empirical evidence, Daniel Crane of the University of Michigan Law School disagrees that antitrust statutes should seek to solve the issue of lower wages. He says that “more antitrust enforcement is not the answer to wealth inequality.” He claims that workers’ wages actually increase with monopoly power because that is when unionization is more likely to occur. According to Crane, “it is time progressives remove antitrust from their wealth inequality playbook.”

Absent unionization, however, workers’ wages do not increase with monopoly power but continue to decline, argue Marinescu and Hovenkamp. Furthermore, they do not claim that antitrust enforcement will fully mitigate wealth inequality. Instead, they simply maintain that a merger that results in a high concentration of labor should fall under the umbrella of antitrust enforcement because it meets the statutory requirements of the Clayton Act.

No court has ruled on this issue yet, but there are signs that Marinescu and Hovenkamp’s research may change the tides of antitrust enforcement by regulatory authorities. Recently, officials at both the Justice Department and the Federal Trade Commission have demonstrated their intent to investigate the concentration of labor as an antitrust violation, even inviting Marinescu to discuss her work with them.

For now, litigants could incorporate Marinescu and Hovenkamp’s work to make an argument for a court to consider a merger’s effect on labor markets. Such an argument may just find a foothold, nestled in Section 7 of the Clayton Act.