Paradox or Contradiction? Antitrust Law in Labor Markets

Earlier this year, the Federal Trade Commission (FTC) and Justice Department (DOJ) launched a joint inquiry investigating the “impact of monopsony power, including in labor markets.” While monopoly describes a single producer or group thereof manipulating a market, monopsony is the condition of a single buyer doing the same. To conceptualize monopsony in labor markets, think of the “Company Town.” A single firm employs all or most workers in a town. The firm has no competition when hiring townsfolk. The townsfolk do not have an alternative venue for employment. This allows the firm to set wages with minimal to no negotiation as the sole buyer of labor, behaving as a monopsony. In labor markets, workers supply while firms purchase labor. Yet, there is reason to think  that recent antitrust developments by the FTC will be another lame duck in Washington. 

More than a century ago, Congress shielded labor unions from antitrust regulations. This is because unions are, by definition, monopolies of labor. As a union becomes larger, it increasingly monopolizes labor, negotiates wages as its seller, and creates barriers to entry against nonunion workers. Some argue that while labor unions are immune from antitrust prosecution, the DOJ and FTC may still have the authority to apply antitrust law to labor markets to prosecute firms as labor monopsonies. However, others argue that fundamental hurdles must be overcome to make this case. 

First, antitrust prosecution has traditionally and successfully been pursued to advance consumer welfare. By breaking up big business, the federal government theoretically creates market competition to generate the downward movement of prices and more consumer choice within a sector. However, in labor markets, firms are the consumers. To prosecute firms as monopsonies, U.S. attorneys must wave goodbye to the consumer welfare argument and likewise avoid the potentially hypocritical rhetoric that producers should win. Second, the language which shields unions from antitrust law states, “the labor of a human being is not a commodity or article of commerce.” While labor is technically something that is sold, here it is not legally defined as a commodity to avoid designating labor as property. Commodities designated as property like steel, oil, or coffee beans cannot organize and claim they were wronged through manipulation of their price. In those cases, the human consumer, represented by the state, argues against monopoly. When workers, however, are what is at stake, then legal representation on an individual or organizational (union) level becomes permissible. However, it is important to note that this issue must be addressed within antitrust law’s wider context, which is meant to look beyond individualized harm toward the market as a whole. For these reasons, the FTC’s inquiry into monopsony should be considered both revolutionary and tenuous. 

Antitrust law has always been a contentious issue. More than a century ago, the U.S. codified antitrust regulations to give the DOJ and the FTC broad powers to prosecute firms suspected of commodity monopolization. Antitrust prosecution was many times pursued against Standard Oil, American Tobacco, AT&T, and Microsoft (though never broken up). However, legal scholar Robert H. Bork wrote a famous criticism of antitrust prosecution, since cited by over 100 courts, arguing that a big business is not necessarily a bad business if it engineers greater levels of productive efficiency. Bork argues that monopolies may increase consumer welfare through productive efficiency in producing commodities at a lower cost or with greater value. This consumer welfare standard has largely shaped the Supreme Court’s reasoning on antitrust law ever since. Before Bork, increased productive efficiency was deliberately ignored by courts ascertaining whether to deny corporate mergers rather than permit them. 

Even given current U.S. labor dynamics, the argument that monopsony is widespread seems to lack standing. Consider again the “Company Town.” We should see generally low job turnover in the economy as workers are stuck and unable to choose comparable occupations. They would have no choice but to stay in their jobs, where firms would deliberately exploit the situation to minimize wages. However, job turnover in the U.S. is very high. Hires and quits have been consistently above average since record keeping began. Workers report having more flexibility, better benefits, and more opportunities for advancement because of leaving their past job and finding a new one. 

Finally, one should consider the consequences of applying antitrust law to labor markets. To allege that Google has a monopoly on online advertisement is one accusation; to charge it with being a labor monopsony of software engineers is another. Economists and lawyers alike will debate this issue in the coming months, especially during the finger-pointing of the looming recession. We must consider, then, the implications of prosecuting companies who may purchase too large a share of the same type of labor. If Uber or Lyft are found to have cornered the market for freelance drivers, what would enforcement look like? Would the federal government break up these large, convenient transportation services? As it stands, these large corporations struggle to stay profitable due to the constantly shifting supply of their drivers, gas prices, and competition from other firms who also depend on growing larger to counter these issues. This highlights an important bottom line: if a firm has a large labor market share within a certain sector, wouldn’t they also have a comparable share of its product market? For example, how can a firm which employs 80% of commercial pilots not have a comparable share of the airline industry? Perhaps a better inquiry for the DOJ and FTC would be: Why has antitrust law become deficient in prosecuting monopolies? Why must we spend additional resources on finding alternative ways to combat an obvious crime? Finally, do these alternative methods of prosecution lead to consequences the American people may be unwilling to accept?