Mark Paul and Mark Stelzner — Rethinking collective action and U.S. labor laws in a monopsonist economy

Discussions today are pervasive among economists and policymakers about the increasing rise of firms’ market power and the potential negative effects of that power on the U.S. economy. Of particular concern is the rise of new technologies and the dominance of platform giants—such as Amazon.com Inc., Alphabet Inc.’s Google unit, Apple Inc., and Uber Technologies Inc., among others—which are not improving the U.S. socioeconomic landscape by reaping gains from potential economies of scale, but rather are throwing around their weight to suppress wages, raise prices on consumers, and enter the political arena to ensure the federal government allows the U.S. economy to continue on the path of market consolidation.

Many economists point to this disconcerting rise in market power as leading to a simultaneous rise in monopsony power—the ability of the firm to have an influence over the determination of workers’ wages—which may contribute to the persistence of stagnant wages despite relatively low headline unemployment numbers in recent times.

This is in stark contrast to decades of research and modeling in economics following the so-called marginalist revolution in the discipline, which resulted in most economists simply treating monopsony power as a special case only existing in the now long-gone company towns of Homestead, Pennsylvania, and Pullman, Illinois, of the 19th century or in highly concentrated island economies of introductory economics textbooks.4

Recent empirical investigations into U.S. labor markets no longer allow reasonable economists to bury their heads in the sand about market power and assume that workers’ wages are simply equal to the value of their marginal product or service. There’s now insurmountable evidence that monopsony power is prevalent throughout the U.S. economy, though the degree to which it may contribute to widening income inequality and underemployment remains an open question. These findings imply that employers can siphon off “rents”—economic parlance for excessive profits beyond the cost of production—from workers through the exercise of monopsony power. These findings are the complete opposite of the dynamic formulated in most current labor market models.

In our new Washington Center for Equitable Growth working paper, “Monopsony and Collective Action in an Institutional Context,” we seek to better understand the theoretical implications of this new and growing empirical literature on monopsony power and the resulting lower wages for workers

WCEG — The Equitablog
Rethinking collective action and U.S. labor laws in a monopsonist economy

Mark Paul, assistant professor of economics at New College of Florida and a fellow at the Roosevelt Institute, and Mark Stelzner, assistant professor of economics at Connecticut College

See also

Oxfam Blogs — From Poverty to Power
Book Review: New Power: How it’s Changing the 21st Century and Why you need to KnowDuncan Green, strategic adviser for Oxfam GB

Jason Smith — Unions, inequality, and labor share

The information transfer model tracks this pretty well.

Information Transfer Economics
Unions, inequality, and labor share
Jason Smith

David F. Ruccio — What, them worry?

How automation and robotics eat jobs and increase inequality of income and wealth. Even if some workers are better off, they are still disadvantaged in terms of distribution of the surplus. Owners of technology, top management, and highly skilled workers take an increasing share of the pie. But because the pie is also increasing, at least some ordinary workers benefit although not as much.

Occasional Links & Commentary
What, them worry?
David F. Ruccio | Professor of Economics, University of Notre Dame

Luigi Zingales — Who Is Responsible for a Declining Labor Share of Output?

Most researchers assume that the share of total output lost by labor went to the owners of capital. However, a new working paper shows that the capital share has also declined, while the profit share has gone up. Could this be related to an increase in firms’ market power?

Profit = surplus value = economic rent. Economic rent arises from market power.

My hypothesis is that markups have increased because firms became better at creating product differentiation and erecting barriers to entry. In 1980 Michael Porter wrote Competitive Strategy, the ninth most influential book of the 20th century according to the Academy of Management. In this book, Porter explained how firms can create barriers to entry and obstacles to competition to increase their pricing power. The book became the primary textbook of all of the strategy courses taught in business schools and the gospel of the leading consulting firms. It captured also Warren Buffet’s investment rule. As he famously stated: “In business, I look for economic castles protected by unbreachable ‘moats’.” Should we then be surprised if firms finally learned how to apply it?
If this were the case, Barkai’s model clearly shows that the outcome is inefficient: economic output and welfare could be greater if there were more competition. But how to promote it? The traditional antitrust method, which looks predominantly at mergers and market shares, could be insufficient. If Barkai’s conclusions prove to be robust, we may need to start thinking about new policies to promote competition.

The standard (neoclassical) economic model is based on no asymmetry including perfect competition.

The entrepreneurial and market share business models are based on monopoly power.

ProMarket — The blog of the Stigler Center at the University of Chicago Booth School of Business
Who Is Responsible for a Declining Labor Share of Output?
Luigi Zingales —Robert C. McCormack Distinguished Service Professor of Entrepreneurship and Finance, and Charles M. Harper Faculty Fellow

Thomas Piketty — We must rethink globalization, or Trumpism will prevail

Let it be said at once: Trump’s victory is primarily due to the explosion in economic and geographic inequality in the United States over several decades and the inability of successive governments to deal with this.…

Judging from Piketty's analysis and proposals, Trumpism gonna win.  Economic liberalism is not going to bridle itself and neither are government that have been captured by it.

The Guardian
We must rethink globalization, or Trumpism will prevail
Thomas Piketty | professor (directeur d'études) at the École des hautes études en sciences sociales (EHESS), associate chair at the Paris School of Economics and Centennial professor at the London School of Economics new International Inequalities Institute

Mike Whitney — Is This Class Warfare?

Is there a conspiracy to keep wages from rising or is it just plain-old class warfare? 

Check out these charts from a recent report by Deutsche Bank and see what you think….

Do you really think that this relentless upward waterfall of money to uber-rich tycoons (“95% of income gains from 2009 to 2012 went to the top 1% of the earning population”) is a mistake, that it’s merely the unintended consequence of well-meaning monetary policies that were designed to spur lending and strengthen growth but, by pure happenstance, backfired and triggered the biggest redistribution of wealth to voracious, do-nothing plutocrats in history?

Is that what you think?

Not meritocracy and just deserts based on marginal productivity?

You don’t need to be Leon Trotsky to figure out what’s really going on here. Heck, even Warren Buffett nailed it when he said, “There’s class warfare, all right, but it’s my class, the rich class, that’s…winning.”
Counterpunch
Is This Class Warfare?

Mike Whitney

Gaius Publius — The Goal of the Neo-Liberal Consensus Is to Manage the Decline

Boiling frogs.

Growth in terms of per capita real GDP versus standard of living and distributed prosperity.

I guess TPTB haven't noticed yet that this is what the US presidential election is about and workers are angry.

YS: And let us also not forget that the “things are going to get worse for you” story also conveniently diverts attention from the degree of rent extraction and looting that is taking place. US corporate profit share of GDP has been at record levels, depending on how you compute if, of 10% of 12% of GDP, when no less than Warren Buffett deemed a profit share of over 6% of GDP as unsustainably high as of the early 2000s. That higher profit share is the direct result of workers getting a far lower share of GDP growth than in any post-war expansion. So the increased hardships that ordinary people face is not inevitable, but is to a significant degree due to the ruling classes taking vastly more than their historical share out of greed and short-sightedness.

Gaius Publius is always good, but this is a must-read in election season. You are being set up.

Naked Capitalism
Gaius Publius: The Goal of the Neo-Liberal Consensus Is to Manage the Decline
Yves Smith

Matias Vernengo — What makes capitalism capitalism?

Are you sure you know? Take the test.

Naked Keynesianism

What makes capitalism capitalism?

Matias Vernengo

Paul Krugman — Robots and Robber Barons

Why is this happening? As best as I can tell, there are two plausible explanations, both of which could be true to some extent. One is that technology has taken a turn that places labor at a disadvantage; the other is that we’re looking at the effects of a sharp increase in monopoly power. Think of these two stories as emphasizing robots on one side, robber barons on the other.

The New York Times | Opinion
Robots and Robber Barons
Paul Krugman | Professor of Economics, Princeton University
Professor Krugman bites the bullet and hits the issue head on:

Wait — are we really back to talking about capital versus labor? Isn’t that an old-fashioned, almost Marxist sort of discussion, out of date in our modern information economy? Well, that’s what many people thought; for the past generation discussions of inequality have focused overwhelmingly not on capital versus labor but on distributional issues between workers, either on the gap between more- and less-educated workers or on the soaring incomes of a handful of superstars in finance and other fields. But that may be yesterday’s story.

The right wing commentators are already after today — George Will and Mary Matlin kicked it off.