The New Monopoly Can Control the Cost of Labor
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Right Now The expanding Harvard universe OCCUPATIONAL HAZARD in which there is only one seller. The more an industry is dominated by a small number of corporations, the more those companies The New Monopoly can control the cost of labor. Traditional- ly, Furman says, economists have relied on a supply-and-demand story about the la- arket concentration, the ers, but also, economists increasingly believe, bor market: “There’s a supply of workers economist’s term for how much on labor. “Fewer firms in a given industry and demand for workers, and the wage is an industry is dominated by one makes it easier for them to have more bar- what clears the market, just like the price of M or a few firms, touches ever more gaining power [over employees], and harder wheat is what clears the market for wheat. aspects of American life. From the obvious for workers to switch to another employer,” That explains a lot about wages, but it prob- (the Amazons and Walmarts of the retail says Jason Furman, professor of the practice ably doesn’t explain everything…[T]hat re- economy) to the obscure (the beer indus- of economic policy at the Harvard Kennedy search program went as far as it could.” try, which may appear diverse, is dominated School, and former chair of the Obama ad- In the last three years, Furman explains, by two firms), market concentration has in- ministration’s Council of Economic Advisers. economists have looked to monopsony and creased in three-quarters of U.S. industries Today’s labor markets increasingly look other factors beyond market competition to during the twenty-first century. This has had like a monopsony: a market in which there is explain the stagnation of Americans’ wages wide-ranging effects not only on consum- only one buyer—the inverse of a monopoly, during the last few decades. Fewer compa- nies in a given industry make it easier for those companies to coordi- nate, either indirectly or through overt col- lusion, to keep wages low. Think of a town with two big-box re- tail stores: each store knows what the other pays its cashiers, and neither wants to raise wages. Firms can also use noncompete agree- ments, which ban em- ployees from taking jobs at rival companies, to prevent workers from finding new jobs else- where. About 24.5 per- cent of the American work force has signed a noncompete, according to one Brookings Insti- Illustration by Peter and Maria Hoey Harvard Magazine 11 Reprinted from Harvard Magazine. For more information, contact Harvard Magazine, Inc. at 617-495-5746 RIGHT NOW tution analysis, and this number is not much lower (about 21 percent) for workers earning Explore More For more online-only articles less than the median salary. on research, see: Because it isn’t possible to show causation in studies of a big, aggregate phenom- India’s Dropping Manuscripts enon such as the effect of monopsony Wind-Power Illuminated…by across the U.S. economy, evidence in Potential Women this line of research “comes sort of like How diminishing Tracing lapis lazuli a collage of different pieces here and winds may prove to provides evidence that there, none of which are a randomized be harbingers of women were directly involved in creating experiment or mathematical proof,” Furman climate-change damage. medieval illuminated manuscripts. explains. Some papers examine case stud- harvardmag.com/windpower-18 harvardmag.com/womenscribes-19 ies of growing concentration in industrial sectors like beer or fertilizer; others zoom out to look at the economy as a whole. One the erosion of the American middle class in already done. These new approaches ought 2017 study coauthored by Allison profes- the last two decades. But an indirect con- to augment traditional interventions that sor of economics Lawrence Katz found, for sequence of the gig economy is its effect economists already know can work, Fur- example, that the share of national income on traditional employees: it may reduce the man says, including raising the minimum going to labor has fallen in tandem with the bargaining power of workers in general, and wage and making it easier for workers to rise of “superstar” firms: situations where a makes a bad deal at a full-time job look bet- unionize. But the new insight of recent re- small number of companies gain a very large ter than unstable contract work at, in effect, search on market concentration, he believes, share of an industry. The share of income go- a sub-minimum wage. has been that it’s not simply the rules gov- ing to labor fell the most in industries where Furman and others have recommended erning the labor market that affect wages, concentration has increased the most. a slate of policy ideas to restrain the influ- it’s also those governing product markets— Why monopsony has prevailed across so ence of monopsonies, and help make la- making market concentration a concern to many industries isn’t completely understood, bor markets freer and more competitive. Americans not only as consumers, but also MANX_IN_THE_WORLD/ISTOCK LEFT: AT GETTY BY CHRISTINA RIGHT: IMAGES; AT WARINNER but it is probably due partly to technological Princeton economist Alan Krueger, Ph.D. as workers and citizens. changes that make it easier for companies ’87, has proposed strengthening antitrust vmarina n. bolotnikova like Amazon to dominate the retail sector. enforcement to make mergers more diffi- Federal antitrust enforcement, conceived cult, and banning noncompete agreements jason furman website: as a way to protect consumers rather than for low-income workers, as some states have hks.harvard.edu/faculty/jason-furman workers, is also not as robust as it once was, permitting ever-larger corporate mergers. And once firms control an industry, they may PRINCIPLES IN PRACTICE hinder new competitors by such means as patents or regulatory barriers: opening a new hospital, for example, often requires a Gene Editing and Ethics “certificate of need” showing that the com- munity needs it. “The theory was: there was overbuilding and too many hospitals driving he gene-editing technology zheimer’s and ALS. Now, however, a new up costs,” Furman says. “That theory seems CRISPR/Cas9 has been described gene-editing technique called base editing, to be less persuasive than the theory that as a word processor for DNA, but developed at the Broad Institute of MIT and what’s driving up prices is too little compe- T Kevin Eggan says it has all the fi- Harvard in 2016 by professor of chemistry tition.…That too much competition would nesse of a thermonuclear explosion. The and chemical biology David R. Liu, promis- be bad is something that people who don’t professor of stem cell and regenerative biol- es far fewer off-target edits. Liu’s technique want competition came up with.” ogy has spent his career re-writing genomes, chemically alters DNA, letter by letter, instead Another, subtler reason that monopsony and he appreciates the accuracy with which of slicing through it. If CRISPR/Cas9 is a pair might affect wage growth: the gigification the CRISPR “guide” sequence can home in of scissors, base editing is an eraser and pen- of the economy. Much has been written, in on its target. But the second phase of the cil. The greater precision of this new tech- this magazine (see “How U.S. Companies editing process, when the molecular scis- nique has emboldened Eggan to use it to alter Stole American Jobs,” July-August 2017, page sors of the Cas9 enzyme slice through DNA, sperm in order to create heritable changes in 10) and elsewhere, about the rise of contract can introduce any number of unlooked-for special breeds of research animals like mice work like driving for Uber and outsourced errors. “Yes, I can precisely land the nuclear that are then used to model diseases. custodial jobs (though research on the ex- weapon,” he says, “but it’s still going to do That could be a boon for biomedical re- tent of the gig economy is young and still a lot of damage.” search, but base editing for sperm alteration contested). Precarious by design, and lack- Editing errors waste time, money, and makes it more urgent to reckon with critical ing the benefits and protections afforded the lives of the lab animals that scientists ethical questions, because it involves chang- W-2 workers, gig work has contributed to like Eggan use to study diseases such as Al- es to the organism’s germline, the genetic 12 March - April 2019 Reprinted from Harvard Magazine. For more information, contact Harvard Magazine, Inc. at 617-495-5746.