Monopsony

In the "behind-the-scenes" world of Corporate America [SUP](tm) [/SUP]it's been well-understood for a while that businesses can get away with exercising monopsony power over wages and salaries. Don't misunderstand: it's unlikely that most employers and business people were or are aware of the term, but the practices the term names have nevertheless been de rigeur for surviving in our contemporary economic environs.

To put it briefly, monopsony is established when there are fewer buyers for something than might be optimal for competition on the buyer side to increase prices. The price in question, in this case, is the price of labor. Comparatively few buyers, and blatant practices of those buyers, have put artificial downward pressure on wages and salaries.

I've been pointing this out for a while. It's good to see at least someone reporting on it:

https://www.nytimes.com/2018/02/28/opinion/corporate-america-suppressing-wages.html

Even after eight years of economic recovery and steady private-sector job growth, wages for most Americans have hardly budged. It is tempting to think that wage stagnation is intractable, a result of long-term trends, like automation and globalization, that government is powerless to do anything about.

In fact, a growing body of evidence pins much of the blame on a specific culprit, one for which proven legal weapons already exist. But they are not being used.


The culprit is “monopsony power.”

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https://slate.com/business/2018/01/a-new-theory-for-why-americans-cant-get-a-raise.html

Economists have struggled over that question for years now, as wage growth has stagnated and more of the nation’s income has shifted from the pockets of workers into the bank accounts of business owners. Since 1979, inflation-adjusted hourly pay is up just 3.41 percent for the middle 20 percent of Americans while labor’s overall share of national income has declined sharply since the early 2000s. There are lots of possible explanations for why this is, from long-term factors like the rise of automation and decline of organized labor, to short-term ones, such as the lingering weakness in the job market left over from the great recession. But a recent study by a group of labor economists introduces an interesting theory into the mix: Workers’ pay may be lagging because the U.S. is suffering from a shortage of employers.

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And for those who like to actually read, here's a decent paper (linked in the NY Times article) on the topic:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3129221

I'll sum this up.

Going into business today is like sitting down to a poker table where only a few players are left, and they have huge stacks of chips. That basically gives them a mathematical certainty of winning, assuming they're decent players. They can afford to lose more than a few hands to flush out the new comers chips, and in short order, put them under.

And that's why we have a shortage of employers. Because, in addition to that rigged game of poker, imagine if we let thos few left at the table change the rules to suit them.

ashurbanipal said:

In the "behind-the-scenes" world of Corporate America [SUP](tm) [/SUP]it's been well-understood for a while that businesses can get away with exercising monopsony power over wages and salaries. Don't misunderstand: it's unlikely that most employers and business people were or are aware of the term, but the practices the term names have nevertheless been de rigeur for surviving in our contemporary economic environs.

To put it briefly, monopsony is established when there are fewer buyers for something than might be optimal for competition on the buyer side to increase prices. The price in question, in this case, is the price of labor. Comparatively few buyers, and blatant practices of those buyers, have put artificial downward pressure on wages and salaries.

I've been pointing this out for a while. It's good to see at least someone reporting on it:

https://www.nytimes.com/2018/02/28/opinion/corporate-america-suppressing-wages.html



https://slate.com/business/2018/01/a-new-theory-for-why-americans-cant-get-a-raise.html



And for those who like to actually read, here's a decent paper (linked in the NY Times article) on the topic:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3129221

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Simple solution: Increase the demand for labor.

'real wages' peaked in the US in 1979, the year I graduated high school & inflation at the time was insane

needless to say I was not impressed with America then, or since ............

temporary aka contract employment started gaining great traction in the late 1980s, early 1990s

locating a good, full time position now days, with good benefits is pretty much a thing of the past

employers pretty much play the game of musical employees now; work folks for a while, rotate them out, rotate new folks in, work them for a while, rotate them out, repeat

it's like some dumb ass game we learned in kindergarten only now it can really **** up people's lives

Great way to run a third world nation ........... and folks wonder why there is so much crime ..........

ashurbanipal said:

In the "behind-the-scenes" world of Corporate America [SUP](tm) [/SUP]it's been well-understood for a while that businesses can get away with exercising monopsony power over wages and salaries. Don't misunderstand: it's unlikely that most employers and business people were or are aware of the term, but the practices the term names have nevertheless been de rigeur for surviving in our contemporary economic environs.

To put it briefly, monopsony is established when there are fewer buyers for something than might be optimal for competition on the buyer side to increase prices. The price in question, in this case, is the price of labor. Comparatively few buyers, and blatant practices of those buyers, have put artificial downward pressure on wages and salaries.

I've been pointing this out for a while. It's good to see at least someone reporting on it:

https://www.nytimes.com/2018/02/28/opinion/corporate-america-suppressing-wages.html



https://slate.com/business/2018/01/a-new-theory-for-why-americans-cant-get-a-raise.html



And for those who like to actually read, here's a decent paper (linked in the NY Times article) on the topic:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3129221

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In the first story, they talk about the non-compete clause at Jimmy Johns, but that just goes to show the laziness of the writer, because that clause was dropped nearly two years ago.

And here's the bottom line -- if you're approached to sign a non-compete in order to take a job, look it over carefully and see if it will impact future employment. If you're not comfortable -- walk away from the job. Most employers, unless it's a high-level job, will never pursue you in court if you take a competitive job upon quitting them. And, most of the time, you'd win in court anyway, unless they can prove you financially damaged them.

KevinKohler said:

I'll sum this up.

Going into business today is like sitting down to a poker table where only a few players are left, and they have huge stacks of chips. That basically gives them a mathematical certainty of winning, assuming they're decent players. They can afford to lose more than a few hands to flush out the new comers chips, and in short order, put them under.

And that's why we have a shortage of employers. Because, in addition to that rigged game of poker, imagine if we let thos few left at the table change the rules to suit them.

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Hard to compete with people who can afford accountants, attorneys and lobbyists to overcome barriers to entry in a market while setting up more behind you.

HowardBThiname said:

In the first story, they talk about the non-compete clause at Jimmy Johns, but that just goes to show the laziness of the writer, because that clause was dropped nearly two years ago.

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A point the article acknowledges, if memory serves. You seem to have missed the point. This is an example well-known to the public (since it made national news) the writer is using to foster understanding of the problem.

HowardBThiname said:

And here's the bottom line -- if you're approached to sign a non-compete in order to take a job, look it over carefully and see if it will impact future employment. If you're not comfortable -- walk away from the job. Most employers, unless it's a high-level job, will never pursue you in court if you take a competitive job upon quitting them. And, most of the time, you'd win in court anyway, unless they can prove you financially damaged them.

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Again missing the point of the article. For many people, the choice is either sign the non-compete clause, or face homelessness and starvation.

HowardBThiname said:

In the first story, they talk about the non-compete clause at Jimmy Johns, but that just goes to show the laziness of the writer, because that clause was dropped nearly two years ago.

And here's the bottom line -- if you're approached to sign a non-compete in order to take a job, look it over carefully and see if it will impact future employment. If you're not comfortable -- walk away from the job. Most employers, unless it's a high-level job, will never pursue you in court if you take a competitive job upon quitting them. And, most of the time, you'd win in court anyway, unless they can prove you financially damaged them.

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I have signed a few non competes & I have also worked on the same products at the next employment scenario aka a big No No; no one ever took me to court

NCs are pretty common (from my experience) working within the semiconductor & medical device industries

Mycroft said:

Simple solution: Increase the demand for labor.

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Ummmm...sure. Incisive commentary. Worthy of a freakin' Nobel Prize in economics.

The articles point to practices by employers that limit the demand. Your response is roughly equivalent to this: someone notices a chemical factory is burning. Their comment is to say "simple solution. Put out the fire." Or this: Germany is raising and taking over Europe while Japan is taking the Pacific. Simple solution: defeat them. The question in each case is how.

cuban smokes said:

I have signed a few non competes & I have also worked on the same products at the next employment scenario aka a big No No; no one ever took me to court

NCs are pretty common (from my experience) working within the semiconductor & medical device industries

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Yes, that's what typically happens. Perhaps the companies are just relying on the NC to scare folks...

ashurbanipal said:

A point the article acknowledges, if memory serves. You seem to have missed the point. This is an example well-known to the public (since it made national news) the writer is using to foster understanding of the problem.



Again missing the point of the article. For many people, the choice is either sign the non-compete clause, or face homelessness and starvation.

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For the vast majority of people turning down a fast-food job and looking for another won't result in homelessness or starvation. However, as others pointed out, most workers ignore the policy when they start a new job anyway, so the effect is negligible.

HowardBThiname said:

For the vast majority of people turning down a fast-food job and looking for another won't result in homelessness or starvation.

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I'm curious what your data is for this assertion--that is, that for the vast majority (which I'd expect to be something like 75% or more majority), turning down a fast-food job won't result in homelessness and starvation.

HowardBThiname said:

However, as others pointed out, most workers ignore the policy when they start a new job anyway, so the effect is negligible.

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If memory serves, the reason the Jimmy John's case first made news was because they were enforcing it. The problem is not as bad in fast food as it is in, say, tech fields, where non-compete clauses are fairly common and they do depress wages.

Just so we don't get too far off topic: non-compete clauses are merely one tool employers use to wield monopsony. In most cases, it's only necessary to rely on the fact that labor does not and cannot travel the way products can these days, and to pay attention to the BLS statistics for a given market. When I was an employer, my regular practice was to offer just below the prevailing wages in my market. I could do that, because I knew that the few other employers who were also hiring were doing the same, and we could always depend on getting someone good in a position for less and less over time. While I was VP of Operations, we saw sales double while labor costs, and wages per capita, decreased about 7%.

Our investors were quite happy, of course, but I came to recognize that such practices violate the reason that market economics is supposed to value wages correctly. Employers simply do not compete for labor the way they do for market share for their products.

KevinKohler said:

I'll sum this up.

Going into business today is like sitting down to a poker table where only a few players are left, and they have huge stacks of chips. That basically gives them a mathematical certainty of winning, assuming they're decent players. They can afford to lose more than a few hands to flush out the new comers chips, and in short order, put them under.

And that's why we have a shortage of employers. Because, in addition to that rigged game of poker, imagine if we let thos few left at the table change the rules to suit them.

Click to expand...

Yes, that is basically the situation.

Spartacus FPV said:

Hard to compete with people who can afford accountants, attorneys and lobbyists to overcome barriers to entry in a market while setting up more behind you.

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Setting up more behind you? More what?

ashurbanipal said:

I'm curious what your data is for this assertion--that is, that for the vast majority (which I'd expect to be something like 75% or more majority), turning down a fast-food job won't result in homelessness and starvation.

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I have no data, just as you didn't when you made the claim that not taking the job could mean starvation and homelessness. Don't move the goalposts now.

If memory serves, the reason the Jimmy John's case first made news was because they were enforcing it. The problem is not as bad in fast food as it is in, say, tech fields, where non-compete clauses are fairly common and they do depress wages.

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I don't think it was ever enforced, but complaints launched an Attorney General investigation that deemed it unenforceable, and the company dropped the clause from it's contracts. This is what the clause said:

The non-compete agreement prohibited workers during their employment and for two years after from working at any other business that sells “submarine, hero-type, deli-style, pita, and/or wrapped or rolled sandwiches” within two miles of any Jimmy John’s shop in the United States.

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Jimmy John?s Will Stop Making Employees Sign Non-Compete Agreements | Fortune

That leaves a lot of fast food positions still available in most communities.

Just so we don't get too far off topic: non-compete clauses are merely one tool employers use to wield monopsony. In most cases, it's only necessary to rely on the fact that labor does not and cannot travel the way products can these days, and to pay attention to the BLS statistics for a given market. When I was an employer, my regular practice was to offer just below the prevailing wages in my market. I could do that, because I knew that the few other employers who were also hiring were doing the same, and we could always depend on getting someone good in a position for less and less over time. While I was VP of Operations, we saw sales double while labor costs, and wages per capita, decreased about 7%.

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We offer some of the highest wages in the local construction industry and a good benefits package. We've found that's essential in keeping high-quality framers and carpenters. We have a good reputation of being one of the best custom builders in the community, and we, unfortunately, have to turn workers away because we have virtually no turnover. The market supports us because there will always be clients that want quality work and are willing to pay for it.

Our investors were quite happy, of course, but I came to recognize that such practices violate the reason that market economics is supposed to value wages correctly. Employers simply do not compete for labor the way they do for market share for their products.

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Some industries will not support high wages -- period. Fast food is one of them.

You don't say what industry you're in but if you're not happy -- get out. Artificially boosting wages is an economic disaster for many industries, look at what happened to Hostess.

ashurbanipal said:

Setting up more behind you? More what?

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Trade barriers, regulations, things that make small business harder but a big business can afford.

ashurbanipal said:

Ummmm...sure. Incisive commentary. Worthy of a freakin' Nobel Prize in economics.

The articles point to practices by employers that limit the demand. Your response is roughly equivalent to this: someone notices a chemical factory is burning. Their comment is to say "simple solution. Put out the fire." Or this: Germany is raising and taking over Europe while Japan is taking the Pacific. Simple solution: defeat them. The question in each case is how.

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shrug...

If you want Nobel-quality commentary, go talk to Krugman. Just be aware that he's going to give you a liberal-slanted viewpoint. If that's what you want...go for it.

Here's my viewpoint:

Increase the demand for labor and those practices will be abandoned because the workers won't have to put up with them. That's a no-brainer.

Now...you might ask, how do we increase the demand for labor, right? The best way is for the government to create a business-friendly environment for the country. This increases the creation of new businesses, the expansion of established businesses and the return of businesses who have moved to other countries...all of which increases the demand for labor.

And you know what? It just so happens that our President is working toward creating a business-friendly environment for the country. Is that a coincidence...or what?

KevinKohler said:

I'll sum this up.

Going into business today is like sitting down to a poker table where only a few players are left, and they have huge stacks of chips. That basically gives them a mathematical certainty of winning, assuming they're decent players. They can afford to lose more than a few hands to flush out the new comers chips, and in short order, put them under.

And that's why we have a shortage of employers. Because, in addition to that rigged game of poker, imagine if we let thos few left at the table change the rules to suit them.

Click to expand...

That explains the lack of competing employers fairly well but does not really address the labor wage rate (salary?) offered by them. A smaller employer (business) is less apt to get volume discounts on goods/services needed and simply cannot afford to pay labor much over market rate (that required to attract and retain qualified labor) while still remaining price competitive.

Even in times of (nearly) full employment, wages for lower skilled or unskilled (entry level?) labor don't rise as much as those of higher skilled workers because of the "safety net" (public subsidies offered to many of those with low wages) and virtually unlimited immigration (legal and illegal).

Mycroft said:

Simple solution: Increase the demand for labor.

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That only works if the supply of qualified labor is limited. Even in times of (nearly) full employment, wages for lower skilled or unskilled (entry level?) labor don't rise as much as those of higher skilled workers because of the "safety net" (public subsidies offered to many of those with low wages) and virtually unlimited immigration (legal and illegal).

KevinKohler said:

I'll sum this up.

Going into business today is like sitting down to a poker table where only a few players are left, and they have huge stacks of chips. That basically gives them a mathematical certainty of winning, assuming they're decent players. They can afford to lose more than a few hands to flush out the new comers chips, and in short order, put them under.

And that's why we have a shortage of employers. Because, in addition to that rigged game of poker, imagine if we let thos few left at the table change the rules to suit them.

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Capital calls the shots today. Labor, especially unskilled labor, is a commodity with little intrinsic value anymore. Those with the most capital do get to rewrite the rules, unless The People demand change. Thus far, the people refused and instead have been voting in capital's whores.

Thus is the way of the world in the 21st century.

it seems odd that Jimmy Johns would have their employees sign NCs

I mean, how technically difficult is it to make a sandwich? It's not like the employees are MIT grads, huh?

Jimmy Johns must be run by a bunch of morons .............

Spartacus FPV said:

Trade barriers, regulations, things that make small business harder but a big business can afford.

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I see. Thanks for the clarification.

This seems to be a foregone conclusion in a capitalist system, even if, ideally speaking, such things are entirely against capitalist principles. Capitalism apologists are often quick to make a similar criticism of communism: even though it is against communist principles to establish an economic and political elite, in actual practice, such is its natural result.

ttwtt78640 said:

That explains the lack of competing employers fairly well but does not really address the labor wage rate (salary?) offered by them. A smaller employer (business) is less apt to get volume discounts on goods/services needed and simply cannot afford to pay labor much over market rate (that required to attract and retain qualified labor) while still remaining price competitive.

Even in times of (nearly) full employment, wages for lower skilled or unskilled (entry level?) labor don't rise as much as those of higher skilled workers because of the "safety net" (public subsidies offered to many of those with low wages) and virtually unlimited immigration (legal and illegal).

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My exp has always been the opposite....the mom and pops pay better than the corporations do.

KevinKohler said:

My exp has always been the opposite....the mom and pops pay better than the corporations do.

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That has not been my experience and also why PPACA exempted small employers (less than 50 employees) from the insurance mandate. Some of them may pay a bit more per hour but offer little or no fringe benefits and zero opportunity for promotion.

HowardBThiname said:

I have no data, just as you didn't when you made the claim that not taking the job could mean starvation and homelessness. Don't move the goalposts now.

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I didn't make quite that claim. I said that, for many people, the choice is either sign the non-compete clause, or face homelessness and starvation. According to the Times article, one quarter of all workers in the U.S. are covered by a non-compete clause. According to this link:

https://www.statista.com/statistics...thly-number-of-full-time-employees-in-the-us/

There were 125 million full-time workers in January of this year. Let's assume the "one-quarter" figure is a bit out of date, so 120 million. One quarter of that is 30 million. If we figure maybe a third of those don't absolutely need to work (a dubious proposition if you ask me, but I'll be generous) that's still 20 million people who need their jobs and who are covered by a non-compete clause. Twenty million sounds like "many" to me. It's also quite enough to create a general downward pressure on wages.

HowardBThiname said:

I don't think it was ever enforced, but complaints launched an Attorney General investigation that deemed it unenforceable, and the company dropped the clause from it's contracts.

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I could be mis-remembering. Anyhow, it came to light. Non-compete clauses are enforced in higher wage jobs, which I think is the point anyway.

HowardBThiname said:

We offer some of the highest wages in the local construction industry and a good benefits package...The market supports us because there will always be clients that want quality work and are willing to pay for it.

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I got quality work out of all my underpaid folks. I don't know whether you're a manager in your firm or not, but if so, let me ask you: suppose you could pay your workers far less, and still get the same quality of work and dedication out of them. Would you not do so? If not, why not?

HowardBThiname said:

Some industries will not support high wages -- period. Fast food is one of them.

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That is certainly true, though most industries, including fast food, will support wages higher than are currently paid, though that would also mean less profit. In general, some time in the 80's, expectations for profit rose substantially, partially thanks to the love-fest of deregulation in that era.

HowardBThiname said:

You don't say what industry you're in but if you're not happy -- get out.

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Just to clear up some confusion: I worked my way up from cashier in a retail health food store to VP of Operations in the larger umbrella corporation that owned the store in which I started, plus about 30 others (health food and also just general grocery), and two warehouses that distributed to other retail chains. I left from there and started my own company in generalized tech consulting and database architecture. We never had any really big clients (that is, of the size of, say, Google or Apple), but did work for some recognizable names, though mostly smaller organizations. Through those experiences, I came to realize that the business culture in the U.S. is sick, and that while I was amassing a small fortune, I was also perpetrating a great deal of evil in a lot of lives. I sold the company, gave away most of my wealth, and went back to get a PhD (in philosophy), and I now teach philosophy at a second-tier research institution in the western U.S. For a number of reasons I keep my identity secret (for one thing, probably at least a few more philosophically-minded on these boards might just have heard of me), so that's as much biographical information as I put out.

Anyway, the point is, through my consulting experience, I've had first-hand looks behind the scenes at over a hundred corporations in the U.S., across many industries and regions. With a couple notable exceptions, I saw the same pattern over and over and over again. Companies expend a lot of brainpower to figure out how to artificially depress wages. That's something I've been saying on these boards for a few years. This point that seems so obvious to me, and that seems like it should be obvious to everyone, is only recently getting any treatment in the national conversation.

HowardBThiname said:

Artificially boosting wages is an economic disaster for many industries, look at what happened to Hostess.

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Well, it's sure as heck a disaster when labor costs exceed sales, which, as I understand it, is what happened to Hostess. However, in that first company--the grocery/health-food/distribution one--our labor costs were usually about a third of our profits. We could have doubled everyone's wage or salary and still been profitable.