Monopolies reduce wages for workers

The argument

The familiar complaint about monopoly concerns what it does to buyers. Monopolies or tight oligopolies have "pricing power" according to Warren Buffett, and this is well documented in economic literature: a firm without competitors can hold prices above what a competitive market would allow. What is less understood or considered is that the same absence of competition operates on the other side of the firm as well, giving it market power over workers. The mechanism is the labour-market mirror of pricing power. Monopolies in product markets are often monopsonies in labor markets, meaning they are the only buyer of labour of a given kind in a given place. Where a worker has one realistic employer rather than several, the threat of going elsewhere carries no weight, and pay no longer has to be bid upwards to retain them. The employer sets wages much as a monopolist sets prices, and the worker is in the weak position for the same structural reason the consumer is. The empirical claim follows the geography this implies. Research by Jose Azar, Marshall Steinbaum and Ioana Marinescu shows that commuting zones that are more concentrated have lower wages, which is what the monopsony account predicts: the boundary that matters is the area within which a worker can realistically take a job, and concentration inside that area is what removes their alternatives. Well-paid exceptions do not disturb the pattern, since while some monopolies like Google and Facebook may pay workers well, these are the exceptions rather than the rule. Taken together, this means the harm done by monopoly is understated whenever it is measured only in prices, because the same firms are suppressing the wages of the people they employ.

Premises

Counter-arguments

Defenders of large firms reply that the wage effect is contested and that concentration does not always mean monopsony. Some economists argue the concentration–wage findings are sensitive to how local labour markets are defined, and that national and online hiring give many workers outside options a commuting-zone measure misses. Large, productive firms — including some of the most concentrated — frequently pay above-market wages and benefits and offer more stable employment, and productivity gains from scale can raise wages economy-wide. They add that monopoly power in product markets is often temporary and contestable, disciplined by entry and antitrust, so labour-market harm is not an inherent, permanent feature of large firms. On this view wage suppression is a risk to police, not proof that monopolies as such are damaging to economies.

Rejecting the premises

[Rejecting P1] The concentration–wage findings are sensitive to how local labour markets are defined; national and online hiring give workers outside options a commuting-zone measure can miss, so concentration does not reliably imply wage suppression. [Rejecting P2] Large, productive firms often pay above-market wages and their scale can raise productivity and wages economy-wide, so market size does not by itself reduce workers' pay. [Rejecting C] Because labour-market power is contestable and disciplined by entry and antitrust, wage suppression is a risk to be policed rather than proof that monopolies as such damage economies.