Recentering Worker Welfare in the Breakup Debates

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Scholar shows how current antitrust remedies fail to consider effects on workers.

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To remedy alleged monopolization among big tech companies, a bipartisan chorus has voiced a common message: break them up.

But when courts order large companies to “break up” for violation of antitrust law, what happens to workers?

Antitrust enforcers do not adequately consider the effects of antitrust enforcement on workers, argues Hiba Hafiz of Boston College Law School. But Hafiz urges that they should—because breakups affect workers in significant ways.

The current breakup “debates” are not new. Historically, antitrust regulators and scholars have oscillated between favoring structural remedies—restructuring a large firm into smaller ones—and behavioral remedies—requiring firms to follow pro-competitive conduct. Today, the former approach has grown increasingly popular as commentators call for the divestiture of large tech companies. Courts, however, have yet to follow the commentators.

Within the current conversation, supporters of firm breakups neglect the welfare of workers, Hafiz contends. Agencies are focused on how structural changes will help consumers and small-firm competitors in the product market, while ignoring workers in the labor market.

The consideration of labor market effects was not always absent from antitrust enforcement. Hafiz shows that during the New Deal era, antitrust regulation coincided with industry-wide wage regulation. But antitrust enforcers and their advocates no longer analyze the labor market when proposing remedies, Hafiz states.

Instead, advocates for structural remedies assume that breaking up a large company will help workers because the existence of more firms will increase competition for wages and benefits. Hafiz challenges this assumption, explaining that breakups may lead to restricted worker movement and reduced union power—which harms workers.

To illustrate, Hafiz looks to the court-ordered divestiture of the Bell System, a network of firms organized under the American Telephone and Telegraph Company (AT&T). In the late 1930s, telecommunication workers from across AT&T unionized and achieved wage increases through collective bargaining. They eventually formed an industry-wide union that spanned the country. With a strong union structure and direct government intervention, workers in the Bell System established uniform wage policies, fluid job movement, and centralized demands with AT&T management.

Hafiz shows how the breakup of AT&T disrupted many of the union’s efforts. In 1974, the U.S. Department of Justice filed an antitrust action against AT&T and other companies, claiming that the companies had illegally monopolized the market in telecommunication services. Antitrust enforcers thought that a structural remedy was the only way to stop a monopoly, particularly one in a regulated industry, from engaging in exclusionary conduct. According to Hafiz, the court approved the divestiture but failed to engage in any analysis about how the remedy might impact the labor market.

For workers within the Bell System, the breakup caused considerable damage. Hafiz explains that divestiture weakened the union’s membership and bargaining power, led to reduced earnings, weakened union-management relationships, and decreased internal mobility for employees.

Hafiz urges that antitrust agencies and courts assess the realities of the labor market before imposing structural remedies. Economic approaches such as game theory and bargaining leverage models can help identify how antitrust remedies may impact a particular industry, Hafiz argues.

Hafiz also encourages regulators and courts to use a broader analytical framework, one that includes economic sociology and industrial relations.

Hafiz explains that, when properly analyzed, it becomes clear that divestitures can help or harm workers. A structural remedy may benefit workers if it preserves continued employment, prevents informational asymmetries between employers and employees about wages and work conditions, or maintains workers’ bargaining leverage.

On the other hand, a structural remedy may harm workers if it subjects workers to layoffs, disrupts well-established unions, or raises worker mobility costs across the industry.

In addition to advocating nuanced economic analysis, Hafiz proposes policy reforms for agencies and courts. She says that antitrust agencies should factor worker welfare into any assessment of remedies. For example, if an assessment finds that a structural remedy would ultimately harm workers, antitrust agencies should modify the remedy or seek union approval.

Hafiz also urges courts to use their authority to gather evidence and seek expert advice about labor market effects. Federal law requires courts to consider the public interest when evaluating antitrust consent decrees. When making such determinations, courts could consult economists and even workers themselves, Hafiz suggests.

Finally, Hafiz argues that antitrust regulators should collaborate with other agencies connected to federal labor policy. She recommends that, in tandem with the Office of Information and Regulatory Affairs, antitrust and labor agencies work together to review structural remedies and their labor market effects. For instance, the Justice Department, the Federal Trade Commission, the National Labor Relations Board, and the Department of Labor could form an interagency office responsible for labor market analysis.

Hafiz concludes that government agencies and the courts must broaden their expertise to understand how antitrust enforcement decisions affect workers.