Unions are all-but-gone from the non-governmental American labor force; only around 7% of the private sector remains unionized. With unions mostly out of the picture in setting labor standards, governments have stepped into the fray. Hence the recent political obsession with resetting the minimum wage to livable levels. Democrats want to raise the water levels to lift all boats; Republicans see wage rise causing job cutbacks. It will be a raging battle for quite some time. But there is another trend in global economics that augurs very badly for the struggle against income inequality: Big companies rolling up their competitors and absorbing greater market shares.
Eduardo Porter, writing for the November 1st New York Times, sends this analytical warning:
“Three years ago, the Nobel laureate economist Joseph Stiglitz proposed that increasing profits from companies managing to avoid normal competitive forces — what economists refer to as ‘rents’ — appeared to be an important factor in the rising share of the nation’s income flowing toward corporate profits and top executive pay in recent years. He surmised that weak labor unions — which represent barely over 7 percent of workers in the private sector — did not have the clout to protect the workers’ share.
“Since then, several other studies have presented various channels through which a lack of competition between employers could keep wages down. In a report published last month, the White House Council of Economic Advisers, led by [Jason Furman, President Obama’s chief economic adviser], laid out the case.
“In a competitive market, companies will vie with their rivals to hire the best workers, lifting wages up to workers’ ‘marginal product,’ the last cent where their employers could still turn a profit. As productivity grows, wages will be bid up further. Prosperity will spread. But when there are few or no rivals in a labor market, employers will pay much less.
“This kind of power doesn’t even require employers to hold absolute monopolies. Employers can collude more easily when there are few competitors. They can more easily impose tough contractual restrictions that make it tough for workers to shop for better jobs.
“Competition in product markets does not necessarily translate to competition in the labor market — an exporter that sells into global markets but hires domestically may experience a lot of the former yet little of the latter.
“Waning competition in employment can muck up the economy in more ways than one. It slows wage growth, of course. Lacking outside options, workers are much less likely to leave a job. But economic output and employment will suffer, too, because fewer workers will be willing to work for the lower wage.
“Not everybody agrees that a lack of competition is having a big impact on the job market. “There is evidence of market power,” acknowledged Michael Strain, a moderate conservative at the American Enterprise Institute in Washington. But ‘pending further research, my current view is that big macroeconomic forces like technological change and globalization are significantly more important.’… The main reason for falling wages and declining employment is simply that demand for less-skilled work is falling.
“Still, American markets have been growing more concentrated. Since the late 1990s, the share of revenue accruing to the top 50 firms has been rising in most industries. The average age of firms is rising, as fewer new firms have been entering many markets. In some sectors, like health care, there is clear evidence of monopoly profits.
“And there is direct evidence that big employers are interested in limiting their workers’ options. Hospitals in several metropolitan areas have been accused in court of colluding to reduce nurses’ pay. In a better-known case, some of the titans of Silicon Valley were sued by the Justice Department for agreeing not to poach one another’s engineers.
“Employers have other tools to limit competition in hiring. The Treasury Department has discovered, for instance, that 18 percent of workers are covered by noncompete agreements [not always enforceable depending on state law]. They aren’t all high-end engineers with trade secrets in hand. The list includes fast-food workers.
“Policy makers can push back against employers’ market power. Strengthening labor unions, of course, would give workers more leverage against dominant employers. Raising the minimum wage would provide a higher wage floor. But it seems there is an opportunity to rethink the nation’s approach to antitrust law, too. It should not be seen exclusively as a tool to protect consumers from sticker shock.”
We can add this analysis to other income-skewing trends to understand income inequality further. Like the accelerating trend of overpaying U.S. CEOs: “In between 1978 and 2014, inflation-adjusted CEO pay increased by almost 1,000%, according to a report released [in June of 2015]. Meanwhile, typical workers in the U.S. saw a pay raise of just 11% during that same period.
“With these increases in mind, it should come as no surprise that the ratio between average American CEO pay and worker pay is now 303-to-1. This ratio is lower than its peak in 2000, when it was 376-to-1, but it’s in excess of the 1965 ratio of 20-to 1.” Fortune.com, 6/22/15.
How about the fact that our tax code is layered with loopholes for the wealthy and rates that favor investors over workers. Business screams at a federal corporate tax rate north of 35%, but such vocal objections defy the reality that for companies with annual gross revenues of at least $10 million, sucking down loopholes, the average effective rate is a meagre 12.6%... with many biggies paying nothing at all. Not to mention that globalization has allowed companies to follow skillsets into lower-cost overseas labor markets, which no amount of trade-agreement-fixing is going to reverse. Automation has even taken the benefits of bringing back traditional manufacturing to our shores away from labor and into the pockets of those wealthy players who own the automated equipment. American consumers, although paid less, are addicted to the lower retail pricing that has followed.
Whatever the populist proselytizing that has poured out of this election cycle, there is little doubt that the elites that have flooded desperate candidates (with hands outstretched) with cash and expensive support… The payback, beyond throwing a few token reforms to allow politicians to say something to the people, is to keep the system, and income inequality, intact. In fact the elites have Republicans getting in line to give them down and dirty massive tax cuts, 96% of which will accrue to the 5% at the top of the economic ladder, is pretty clear evidence of what is really going on.
I’m Peter Dekom, and this “let them eat cake” mentality is both unsustainable and a rather clear vector that poses a major existential threat to the United States itself.
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