The Problem
As firms have grown in size, they have become capable of dominating local labor markets—a phenomenon referred to as monopsonization—and of using their market power to suppress wages. There is also evidence that some firms have colluded, entering into no-poaching and similar arrangements that restrict workers’ choices among employers.
The Proposal
In this paper, Alan Krueger and Eric Posner propose three reforms. First, the federal government should enhance scrutiny of mergers for adverse labor market effects. Second, state governments should ban non-compete covenants that bind low-wage workers. Third, no-poaching arrangements among establishments that belong to a single franchise company should be prohibited.
Abstract
New evidence that labor markets are being rendered uncompetitive by large employers suggests that the time has come to strengthen legal protections for workers. Labor market collusion or monopsonization—the exercise of employer market power in labor markets—may contribute to wage stagnation, rising inequality, and declining productivity in the American economy, trends which have hit low-income workers especially hard. To address these problems, we propose three reforms. First, the federal government should enhance scrutiny of mergers for adverse labor market effects. Second, state governments should ban non-compete covenants that bind low-wage workers. Third, no-poaching arrangements among establishments that belong to a single franchise company should be prohibited.
