Skip to content

The Limits of Anti-Monopsony Antitrust


Brian Callaci (@brian_callaci) is the Open Markets Institute's Chief Economist.

The Biden administration has taken welcome steps to reform antitrust policy, including a long overdue abandonment of the dominant pro-corporate “consumer welfare” approach to antitrust. In particular, the antitrust agencies have raised the hopes of the labor movement and labor advocates by stating repeatedly that harms to labor from restraints of trade, mergers, and monopolistic practices will, at long last, be taken as seriously as harms to consumers when bringing cases and setting policy. Nor is this mere empty rhetoric: the Department of Justice has vigorously prosecuted employer attempts to prevent workers from switching jobs, and won a landmark suit that, for the first time, successfully blocked a merger purely on grounds of probable injuries to workers; the FTC has proposed a rule to ban the non-compete contracts that prevent workers from switching employers; and in the proposed new merger guidelines, issued jointly last month by the DOJ and FTC, the agencies have clearly stated that the harms to labor will be considered on equal terms to harms to consumers in merger review. These policy moves follow a mini-explosion in research identifying a lack of labor market competition as one cause of low wages.

And yet, the response from labor advocates and the labor movement to these developments has been rather muted. Indeed, in certain instances, they have actually opposed antitrust regulators. Why the disconnect? One major reason, I argue in this post, is that labor progressives hold rather different ideas from mainstream progressive antitrusters about how labor markets work, the nature of employer power, and what it means for labor market participants to compete fairly. Not incidentally, labor’s ideas are much closer to the views held by many LPE antitrust scholars.

Is Perfect Competition the Summum Bonum?

The Biden administration’s progressive antitrust view of labor market policy is stated most succinctly in its report, The State of Labor Market Competition, which the treasury was directed to write as part of Biden’s Executive Order on Promoting Competition in the American Economy. The report frames the fundamental problem of labor policy as a lack of “competition,” which, if restored, would raise wages to the appropriate level. For instance, the report opens by noting:

The purpose of the report is to summarize the prevalence and impact of uncompetitive firm behavior in labor markets. In particular, the report catalogues the ways in which insufficient labor market competition hurts workers, documents the proliferation of barriers to job mobility, and illustrates how a lack of labor market competition can hold back the broader macroeconomy, while also providing an assessment of the degree to which lack of competition lowers wages.

Biden’s pro-labor competition policy frames the solution to labor’s recent woes as intensifying the level of competition in labor markets, or approximating the competitive outcome by other means, like collective bargaining. This is understandable, since in economic theory the ideal state of “perfect competition” has many attractive features for workers. Under perfect competition, workers have lots of choices of potential employers who bid up the wage until it just equals the worker’s contribution to the employer’s output. In this framework, the primary harm to labor occurs when competition is reduced below this level. With fewer rival employers to compete with for labor, each employer then enjoys the ability to push wages below the worker’s contribution to productivity. Economists call this employer power to suppress wages “monopsony” power. By targeting monopsony power, Biden’s pro-labor antitrust policy—what we can refer to as anti-monopsony antitrust—aims to push wages up to the competitive level that would prevail in a state of perfect competition.

But perfect competition also has clear limits as a normative benchmark, something that labor progressives have long recognized. First, the most basic assumption of labor progressives is that power is neither an aberration nor a distortion to an otherwise perfectly functioning labor market, but rather intrinsic to the employer-employee relationship itself. Indeed, the Treasury report acknowledges this, noting that it is not just the lack of a sufficient number of competing employers that gives rise to monopsony power, but also the costliness of searching for a new job, and the various non-wage characteristics of jobs that workers value. Unlike a spot transaction, employment relationships are ongoing thick social relationships. People do not choose employers the way they choose among competing brands of shampoo. Nonetheless, after recognizing this fact, the Treasury report continues to hold up the state of perfect competition as the normative benchmark.

Second, labor progressives and advocates of anti-monopsony antitrust hold differing normative views about what constitutes a fair wage. The notion of the “competitive” wage in economic models of perfect competition contains an implicit theory of distributive justice, which states that workers should be paid no less than their competitive wage, but also no more than that either. Perfect competition implicitly defines a worker’s productivity, according to the market’s valuation, as what they deserve to be paid. Paying workers more than their productivity introduces distortions to the perfectly competitive ideal. However, as economist Nancy Folbre has argued, virtually no one in a real-world economy is paid their “just deserts,” defined in this way. Rather, so-called economic “rents”—payments above the competitive level—are ubiquitous.

While the logic of perfect competition focuses on squeezing out rents as inefficient “unearned” income, labor progressives have long embraced a different goal. In their view, the role of policy is not to stamp out rents (an impossible task), but rather to ensure that they are shared fairly. For example, labor and employment law embodies fairness values that are quite distinct from those of anti-monopsony, pro-competitive antitrust. The Fair Labor Standards Act of 1938, which established overtime and minimum wage laws, does not mention the competitive wage at all. Rather, it aims to establish fair wages in accordance with “the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers,” declaring that employers who violate these social norms are engaged in an “unfair method of competition.”

For their part, unions have never sought to set workers’ wages to the level of their individual productivity. Instead, unions have instead enforced collective norms of fairness by means such as compressing the wage distribution within workplaces, redistributing rents from capital to labor, and from higher-paid workers to lower-paid workers. While anti-monopsony antitrust may tolerate collective bargaining in imperfectly competitive markets as a method to push wages up to the competitive level, it balks at contracts that allow workers to earn “rents” above that level. But moderating pay disparities on grounds of fairness, even productivity-based disparities, is a feature of almost every union contract.

Third, monopsony power is far from the only kind of employer power with which labor progressives are concerned. Power exists not only in the labor market where wages and labor contracts are negotiated, but also within the hierarchical organization of the workplace itself, in which capital commands and labor obeys. The authority of employers to discipline labor within what philosopher Elizabeth Anderson called the “private government” of the workplace, or what Marx called the “hidden abode of production,” arises even in competitive labor markets and is not accounted for in conventional monopsony models.

Labor progressives are deeply concerned with this second kind of power. If unions were only concerned with countering monopsony power, labor contracts would be very brief documents indeed. However, the bulk of union contracts govern not merely wages, but also things like just cause protections, grievance procedures, and work rules. These clauses exist not to promote competition, but to protect workers from the abuse of an employer’s arbitrary authority. In a similar spirit, various statutory and common law definitions of “employee” status recognize the command vs. obey dichotomy of capital’s relationship with labor, by emphasizing the extent of one party’s control over another as determining a market participant’s “employee” status. Workers do not gain employee status under these laws because they suffer from a lack of competition for their labor, but, in part, simply because they are the party that obeys.

The Danger to Labor Rights

Do these philosophical differences matter for policy? The possibility of incorporating employer monopsony power into, say, merger policy may have raised the hopes of labor progressives, but it also raises an important conceptual challenge for them. If the source of employer power is not primarily employer concentration, but rather features intrinsic to the labor market, how much of a role can merger policy realistically play in fighting employer power? Moreover, anti-monopsony antitrusters (rightly, in my view) reject weighing benefits to one side of the market against harms to another, arguing that any relevant harm should be sufficient to take action against a merger. In general, this attitude redounds to labor’s benefit, since historically consumer welfare antitrust has blessed mergers that harmed workers, as long as they benefitted consumers, but it also means antitrust enforcers will not wave through mergers that benefit workers if they also harm consumers.

More concerning, in my view, is that unlike labor progressives, who rely on simple, qualitative tests for determining who gets employment rights, advocates of anti-monopsony antitrust are deeply interested in the use of quantitative tests of power in policymaking. Antitrust analysis is rooted in case-by-case, often econometric, estimates of market power. Certain conduct—like mergers, or exclusionary contracts—are proscribed only for firms who have been shown to possess market power. The logic of perfect competition, as Eric Posner has recently argued, says that only workers who face monopsony power should be entitled to labor and union rights, because workers who sell labor in competitive markets are already sufficiently protected—by the forces of competition. But using such a market power test contrasts with current labor and employment law, which, rooted in the assumption that the power relationship between labor and capital is inherently unbalanced, gives rights to all workers who exhibit basic, qualitative characteristics of subordination to an employer.

What would happen if labor and employment law imported antitrust-style fact-intensive analysis, requiring workers to demonstrate a degree of monopsony power in order to be entitled to legal protections? Too see the potential implications, take the following concrete example. Who would you intuit is in greater need of legal workplace protections or a union: High-wage tenure track faculty with job security, or precarious low-wage adjuncts? A labor progressive would say adjuncts, but that is actually not what the logic of perfect competition dictates. According to recent research by economists Austan Goolsbee and Chad Syverson, who used the kind of econometric tests favored by antitrust economists, while adjuncts actually compete in a near-perfectly competitive market, universities have significant monopsony power over tenure-track faculty. This makes sense when you think about it: while adjuncts are free to work for any university in their geographic area, tenure-track faculty have a more limited number of employers competing for their wages.

But to a labor progressive, the problem with the market for adjuncts that unions redress is that there is too much competition, hence the need to temper that competition to allow adjuncts to earn a fair wage through collective bargaining (aka a labor cartel). Antitrust professionals might reply that it is a virtue of competition that it drives wages down as well as up, and that no one is entitled to more than the competitive wage, but that view is at deeply at odds with labor progressives’ non-market-based notions of fairness. More generally, the idea of determining a worker’s employment rights through tests of market power is unacceptable to labor progressives.

An Alternative Antitrust

Labor unions have frustrated anti-monopsony antitrusters by embracing the government’s position in some cases, such as in non-union labor markets with dominant employers like University of Pittsburgh Medical Center in Western Pennsylvania, but opposing antitrust regulators in other cases, especially where unions have pre-existing collective bargaining relationships. To many antitrust advocates, it may appear that labor is merely acting inconsistently or even opportunistically. However, as I have argued in this post, labor is better understood as acting on a coherent, but different, philosophy of competition from philosophies grounded in monopsony harms.

Fortunately for the future of progressive competition policy, there is another tradition in antitrust that is more suited to finding common ground with labor’s needs than economic models of perfect competition. That is the concept of fair competition enshrined in the antitrust laws, particularly Section 5 of the Federal Trade Commission Act, which gives the FTC the authority to regulate “unfair methods of competition.” This is precisely the authority the FTC has exercised in its proposed ban on non-competes. Congress did not instruct the FTC to push markets toward perfectly competitive outcomes; rather it instructed it to write rules governing markets to uphold societal norms of fairness as they evolved. For example, in decades past, antitrust policy combatted the kinds of misclassification and fissured workplace schemes now deployed by gig employers on unfairness grounds, because they subjected independent contractors to the command and control characteristics of employment relationships but without recognizing the contractors rights as an employee.

The language of the FTC Act, with its emphasis on fairness, is much more in accord with labor and employment law, which governs “unfair labor practices” and classifies low wages as an “unfair method of competition.” Ultimately, it is antitrust’s deeply embedded and often forgotten notions of fairness, and not models of perfect competition and monopsony, that provide the best starting point for labor and antitrust progressives to engage with each other.