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Can Antitrust Be Pro-Worker?

| Sep 16, 2021 | Antitrust

Image by Gerd Altmann from Pixabay

How Antitrust Failed Workers, by Eric A. Posner (Oxford University Press, 224 pp., $29.95)

In 1776, Adam Smith made perhaps the most famous statement linking monopoly power to labor. “Masters,” he wrote in The Wealth of Nations, “are always and everywhere in a sort of tacit, but constant and uniform, combination, not to raise the wages of labor above their actual rate.” Today, however, rather than taking Smith’s maxim as a warning, most lawyers and judges have come to treat it as a guidebook.

It wasn’t always this way. As historian James L. Huston observed, 19th-century American thinkers on political economy hewed to Smith’s view of the link between corporate concentration and aristocracy. “Labor is superior to capital, and deserves much the higher consideration,” argued Abraham Lincoln in 1861; Lincoln’s words were quoted 50 years later by Teddy Roosevelt as he launched his presidential campaign. In the 1970s, however, Chicago School scholars, led by Robert Bork, reconceptualized the meaning of markets and competition, and tilted the legal establishment toward the interests of capital.

In How Antitrust Failed Workers, University of Chicago law professor Eric Posner explores the legal landscape Bork created and reviews some new economic literature studying what happened over the past 40 years. “In much of the Western world,” Posner writes, “economic growth has slowed, inequality has risen, and wages have stagnated.”

Policymakers posit several possible reasons, from technological changes to globalization to structural changes in the economy. Posner contends that our economic woes are rooted in the failure of antitrust law to constrain how employers exploit their bargaining power over workers. Asymmetrical bargaining power over workers, known as labor monopsony power, is a key factor determining how the economy functions. “One estimate,” he writes, “finds that monopsony power in the U.S. economy reduces overall output and employment by 13% and labor’s share of national output by 22%.”

Posner claims that the way we have practiced antitrust law since the 1970s, focusing largely on product mark-ups that injure consumers, ignores how employees and contractors fit into market structures often dominated by powerful employers. Markets for labor are, in fact, far more concentrated than product markets. Labor markets are more local because you can buy or sell products nationally, but workers have to commute. Switching costs for changing jobs are much higher than, say, buying a different brand of milk. The results are stark. “It is plausible,” as Posner writes, “that in many labor markets, workers are paid at least several thousand dollars per year below the competitive rate.”

And yet, as Posner finds, there are virtually no antitrust cases brought on pure labor monopsony grounds, nor mergers blocked due to employer bargaining power—despite the volume of antitrust cases for anti-competitive activity within product markets. Posner calls this difference a “litigation gap.” It’s not that antitrust law isn’t supposed to handle employer collusion; Senator John Sherman, who passed the Sherman Antitrust Act, saw the legislation bearing his name as an aid to labor, noting that monopoly “commands the price of labor without fear of strikes, for in its field it allows no competitors.”

A 2017 case on price-fixing among chicken giants Tyson and Perdue makes the point. In the 2010s, these firms were raising prices on chicken and cutting production in concert, while holding many suspicious meetings as they did so. It was fairly easy for customers and investigators to figure out what was going on and bring a case. But these firms’ ability to fix chicken prices was paralleled by a second and much less heralded case in which this chicken cartel exchanged information about what they paid their employees. Unlike chicken prices, wages are kept secret, so workers didn’t know it was happening. The class action on wage suppression only emerged after documents came out of discovery from the first suit on price-fixing revealed the collusion.

Instead, the “litigation gap” is the result of a narrow reading of antitrust law and how class action cases are certified. When people do bring cases against labor monopsony, judges dismiss their cases before they get to trial.

Earlier this summer, for instance, a federal judge dismissed a case by plaintiff’s attorneys that McDonald’s had colluded to suppress wages of McDonald’s employees. The fast-food chain’s franchises had to sign an agreement that they would not try to hire each other’s employees by offering them more money, what is known as a “no-poach” clause. The suit claimed that “no-poach” clauses were a form of illegal wage suppression—analogous to price-fixing by firms, but against workers rather than consumers. A similar claim against sandwich-maker Jimmy John’s was dismissed a few days later.

But How Antitrust Failed Workers isn’t a jeremiad about the ways that courts and lawyers handle antitrust. It’s a guide to modern economic research on the matter, a short book with tight prose and dense concepts on virtually every page. Posner goes through merger review, concepts like labor supply elasticity, markdowns, and efficiencies, as well as reviewing recent literature and controversies in the field.

Unfortunately, the courts haven’t kept up with these new findings, and that partly explains why there’s been so little action on the antitrust front for workers. One reason, Posner argues, is institutional; economics itself is split into different branches. Industrial organizational economics, which studies market structure and antitrust, and labor economics, which focuses on workers and employment law, have different models and concerns. Another reason is that until recently, nearly all economists thought that labor markets were competitive, and didn’t bother studying labor monopsony power because they assumed employees had easy access to multiple employers.

As with much conventional economic wisdom, this consensus collapsed in the 2010s. It started with a high-profile collusion case involving Apple and Google working together to suppress engineers’ wages, followed by a range of stories highlighting the extent of contractual provisions that prevent employees from leaving their jobs to go to a rival, or “non-compete agreements.”

The key shift was a result of economic studies showing that minimum wages don’t cause higher unemployment—a shock to the economics establishment, which generally had assumed a trade-off between higher minimum wages and aggregate employment levels. The reason minimum wages don’t cost jobs, according to these studies, is that a pre-existing inefficiency in the market keeps wages below what a competitive rate would otherwise be. Employers, as it turns out, have market power.

How Antitrust Failed Workers operates from the premise that something has gone wrong in how we as a society organize work, and as such, it is a pro-worker book. However, the moral core of Posner’s approach is not fairness, equality, or justice, but efficiency. He dismisses justifications of employment and labor law as preventing poverty and reducing inequality as inferior to thinking through coherent questions of market structure. He relies on economists as the only people who matter.

While there is much to take away from the book, its focus on economic evidence merely serves to narrow the debate to a niche academic specialty with strong biases towards certain assumptions and a purely retrospective view of evaluating policy. Economics is not a science, it is simply a way to conduct a political debate through a narrowly confined language that excludes much of the public.

Take Posner’s discussion on non-compete agreements. In 2015, Hawaii passed a law banning these contracts for tech workers, who now earn 4–5% higher wages than tech workers in states where such contracts are allowed. Posner cites this economic data as support for curtailing such agreements more broadly. Yet, prior to the change in law, these data didn’t exist, because the natural experiment hadn’t happened yet. Political leaders simply had to make a moral case based on common sense and voter wishes; they couldn’t run double-blind experiments on a control society before making policy.

Moreover, as most in antitrust know, specialists in industrial organizational economics aren’t disinterested scientists; even those at top schools often have a side hustle as expert witnesses, and most respect the wishes of their corporate clients. That doesn’t make them evil, but it does mean that their methodologies, though full of numbers, are suspect. As one judge noted during the Sprint–T-Mobile merger trial, listening to economic experts was like choosing between “dueling crystal balls.”

How Antitrust Failed Workers employs economics to conduct particular debates and to elide others altogether. “Antitrust law is currently embroiled in controversy about its assumptions, goals, and methods,” writes Posner. Since the early 2010s, increasingly assertive reformers inspired by Supreme Court Justice Louis Brandeis have taken on the status quo-oriented scholars that shrank antitrust to its current impoverished state. And yet, Posner wants to make clear that his book “does not take sides in this debate.” He doesn’t think antitrust “has the wrong economic goals,” but “that antitrust has almost never been applied to labor markets.”

Avoiding this debate, or attempting to do so, seems to make sense. Posner wants to be taken seriously by practitioners and judges by offering administrable economic methodologies. And yet, it is impossible to avoid a political debate over the point of antitrust and labor law. A key underpinning of antitrust revolutionaries in the 1970s who now dominate courts is that concentration basically doesn’t matter—consumer prices do. There simply is no way to make the case for stronger antitrust laws for workers without a broader framework, and that means getting into the political fight explicitly.

The collapse of antitrust enforcement itself happened because of a philosophical change among enforcers and policymakers, backed by the public through multiple elections. Ronald Reagan made no secret of his goal of unleashing a Wall Street merger boom when his antitrust chief dropped a longstanding monopolization case against IBM. The public rewarded him with a landslide reelection, and he used that political power to change the judiciary as well antitrust standards.

The legal philosophy that Bork introduced and Reagan instituted is still dominant, which is why, as Posner notes, courts “disgrace” themselves when considering labor monopsony cases. No amount of economic evidence will convince judges that what they believe is wrong, as monopolists will always be able to afford to buy seemingly credible econometric models. Judges will change their minds when legal changes from Congress force them or when a nominee by the president replaces them.

How Antitrust Failed Workers is an immensely useful book for lawyers and policymakers thinking about labor and how it relates to market structure. However, the question of whether America is a land where citizens get to keep the fruits of their labor or whether those fruits belong to the aristocrats of capital is a political question, and always has been.

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Matt Stoller is the research director at the American Economic Liberties Project and the author of Goliath: The Hundred Year War Between Monopoly Power and Democracy.

@matthewstoller

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