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Recent Research: industry and labor concentration findings challenge current thoughts on policy solutions

May 24, 2018

Several recent articles covered in the National Bureau of Economic Researchers (NBER) Digest suggest that current understanding of policies surrounding wages, clusters and labor concentration may warrant revisiting. In one piece of academic research, a historical argument of shared productivity gains with employees is challenged, while another article shows a loss of bargaining power for employees in concentrated labor markets.

Industry consolidation slowing wage growth, productivity

In Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages? Efraim Benmelech, Nittai Bergman, and Hyunseob Kim explore the impact on wages resulting from the increased consolidation of most industry groups over the past forty years. The authors found a negative relationship between employer consolidation and wages. Most vulnerable to the impact of consolidation and downward wage pressure are less populated counties with manufacturing facilities dominated by just a few firms (called “monopsony markets”).  Firms in these markets were found to be less likely to share productivity gains with employees, contrary to one of the historical social good arguments justifying public policies supporting investment in technology, innovation and productivity.

Another finding runs contrary to arguments in support of cluster policy. From the NBER Digest article by Steve Maas, “To assess the robustness of their results, the researchers compared plants in the same industry owned by the same company but operating in different locations; they found that ‘those located in a more concentrated local labor market pay significantly lower wages.’”

The NBER Digest article highlights a notable exception the authors found: “The only employees who did not experience wage stagnation in markets with high plant concentration were those who belonged to unions.”

Labor market concentration also increases employer bargaining power

Looking at job vacancies for the top 200 occupations posted in 40,000 employment websites in all 709 federally delineated commuting zones, José A. Azar, Ioana Marinescu, Marshall I. Steinbaum, and Bledi Taska found that in most locations employers have substantial monopsony power when it comes to bargaining with possible employees to fill available positions. They report their findings in the working paper titled Concentration in U.S. Labor Markets: Evidence from Online Vacancy Data.  Maas summarizes in his NBED Digest article: “Under the standards that federal antitrust officials use when determining whether product markets exhibit excessive levels of concentration, 54 percent of the markets were highly concentrated, meaning they had the equivalent of fewer than four firms recruiting employees. Eleven percent of markets were moderately concentrated, and only 35 percent had low concentration.”

Large cities exhibited lower labor market concentration than smaller places, suggesting an increasing policy challenge for midsized, smaller and rural areas to retain or attract talent.  Maas concludes: “Accounting for the unequal distribution of employment, the researchers found that 23 percent of the national workforce is in highly or moderately concentrated labor markets. They argue that traditional market concentration thresholds underestimate workers' loss of bargaining power over time.”

recent research, clusters