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Regulating Employer Market Power

Paper Session

Saturday, Jan. 5, 2019 10:15 AM - 12:15 PM

Hyatt Regency Atlanta, Hanover C
Hosted By: Labor and Employment Relations Association
  • Chair: Aaron J. Sojourner, University of Minnesota

Mobility, Entrepreneurship, and Knowledge of Noncompete Laws: Evidence from an Information Experiment

J. J. Prescott
,
University of Michigan
Evan Starr
,
University of Maryland

Abstract

This paper integrates the literature on subjective beliefs (Manski 2004) and the growing literature on monopsony power induced by postemployment restrictive covenants (Marx et al. 2009) by examining what workers know about the enforceability of covenants not to compete. Using survey data on 11,505 labor force participants and an information experiment, we document that workers of all stripes are largely uninformed regarding the actual enforceability of their noncompetes, including that nearly 70% do not know that they are enforced at the state level. Beliefs about noncompete enforceability are strongly correlated with knowledge that their employer has sued prior employees over noncompetes. Randomly informing workers about the enforceability of their noncompete strongly reduces their belief that they will be in enforced in states that do not enforce noncompetes, but only marginally raises it in states that do. For those in non-enforcing states, information on the lack of enforceability is associated with a 35% drop in the extent to which noncompetes are perceived to be factors in turning down job opportunities at competitors. Using the information experiment as an instrument for subjective beliefs, we find that a 1 percentage point increase in the belief that the noncompete will be enforced is associated with a 1.5 percentage point increase in the likelihood that noncompetes are reported to be factors in turning down job offers. We discuss the implications of these results for the burgeoning noncompete literature and for the policy debate regarding the enforceability of covenants not to compete.

Monopsony Power in United States Labor Markets

Benjamin Lipsius
,
University of Michigan

Abstract

This paper develops a model relating aggregate wages to a traditional measure of market concentration, the Herndahl-Hirschman index (HHI). Local labor market wages and HHIs are constructed from 1980 - 2012 using U.S. administrative data covering the universe of non-farm private sector firms. Employing a rich set of controls for industry, time, and local market characteristics, the model is estimated and used to infer both the cross section and time series of monopsony power. Because of this uniquely rich data set, this paper is able to comment on all industries and occupations across the U.S. Preliminary results show monopsony power depresses wages by almost 30% when comparing competitive labor markets to single-buyer markets.

Anticompetitive Mergers in Labor Markets

Ioana Elena Marinescu
,
University of Pennsylvania
Herbert Hovenkamp
,
University of Pennsylvania

Abstract

Mergers of competitors are conventionally challenged under the federal antitrust laws when they threaten to lessen competition in some product or service market in which the merging firms sell. Mergers can also injure competition in markets where the firms purchase, including the labor market. Recent empirical work in economics has shown that market concentration is very high in many labor markets and that higher labor market concentration is associated with lower wages. Here, we offer an empirically based legal assessment of the problem of mergers that facilitate anticompetitive wage and salary suppression. We consider the most likely problems that courts will encounter in such litigation, including market definition, assessment of market concentration, the role of non-compete and non-poaching agreements as aggravating factors for concentration, and application of the government's Merger Guidelines. Given the high level of concentration in many labor markets, a mature policy of pursuing mergers because of harmful effects in labor markets could yield many cases. Courts must be in a position to adequately deal with such cases based on the application of the existing merger review framework to the analysis of anticompetitive effects in the labor market.

Antitrust Remedies for Labor Market Power

Suresh Naidu
,
Columbia University
Eric Posner
,
University of Chicago

Abstract

Recent research indicates that labor market power has contributed to wage inequality and economic stagnation. Although the antitrust laws prohibit firms from restricting competition in labor markets like in product markets, the government does little to address the labor market problem and private litigation has been rare and mostly unsuccessful. The reason is that the analytic methods for evaluating labor market power in antitrust contexts are primitive, far less sophisticated than the legal rules used to judge product market power. To remedy this asymmetry, we propose methods for judging the effects of mergers on labor markets. We also extend our approach to other forms of anticompetitive practices undertaken by employers against workers. We highlight some arguments and evidence indicating that market power may be even more important in labor than in product markets.
Discussant(s)
Ryan Nunn
,
Brookings Institution
Victor Bennett
,
Duke University
JEL Classifications
  • J4 - Particular Labor Markets