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News from EPI Employer power in labor markets, while strong, is roughly constant—while inequality and wage trends have been driven by a collapse in workers’ power

In a new paper, EPI Research Director Josh Bivens and Policy Director Heidi Shierholz explain how findings from the new wave of economic research into labor market power reinforce the need for policymakers to undertake measures to boost typical workers’ leverage and bargaining power. Much of this new research examines the effect of one form of employer power—market concentration—in either product markets (monopoly power) or labor markets (one form of monopsony power). This research carefully documents that market concentration is pervasive in the American economy and harmful to wages. But too often, economic observers have implied that this concentration is clearly growing and is a principal culprit behind wage stagnation and growing inequality of recent decades.

Bivens and Shierholz argue that there is little evidence that concentration has grown rapidly enough in recent decades to be the principal determinant of these larger trends in wages. However, employer power (whether driven by market concentration or other factors) has still played a starring role in generating inequality by simply remaining strong and roughly constant in the face of collapsing power on the part workers.

”The distributional tug of war that determines who gets what share of economic growth in the American economy has become extremely unbalanced in recent decades, with employers gaining enormously at the expense of typical workers,” said Bivens. “While employer’s heft has remained considerable over this time, what has changed is the leverage that policy once gave typical workers but now doesn’t.”

While it is clear from trends in compensation since the 1970s that employers do wield more power relative to their workers, this rise in the relative market power of employers owes less to growing market concentration and more to the sustained policy attack on policies and institutions that provided leverage to typical workers. Bivens and Shierholz argue that most dramatic change between the post-1970s period—when the pay of most workers diverged from economy-wide productivity—and previous decades, when pay and productivity grew in tandem for the vast majority of workers, is that in the earlier period, institutions and policies provided workers with the countervailing power to bargain effectively in the face of strong employers.

Bivens and Shierholz cite several ways in which worker power has been undermined by intentional policy actions, including: macroeconomic policy that has prioritized steady and very low inflation over low unemployment; policy action leading to the steady erosion of union coverage; the declining value of the federal minimum wage; practices like requiring workers to sign mandatory forced arbitration agreements with class and collective action waivers as a condition of employment, misclassifying workers as independent contractors, and not providing workers with predictable schedules; and rigging the rules of globalization to undermine workers’ leverage while protecting corporate interests.

Bivens and Shierholz argue that these distinctions about what has changed in the relative power of employers and workers are important to make.

“The valuable findings of this new research on employers’ market power point to important new tools that policymakers can and should use to help wage growth—like antitrust action, or cracking down on non-compete agreements and temporary guestworker visas that limit worker mobility,” said Shierholz. “But these newer policy ideas shouldn’t displace other ones that we also know can support wage-growth, like pursuing full employment or higher minimum wages or guaranteeing the right of workers to unionize. In the face of collapsing worker power, these already-established tools for boosting wages remain crucial.”