Labor Market Concentration and Competition Policy Across the Atlantic

Labor Market Concentration and Competition Policy Across the Atlantic Satoshi Araki,† Andrea Bassanini,†† Andrew Green,††† Luca Marcolin,‡ and Cristina Volpin‡‡ Drawing upon data from the largest cross-country study of labor market concentration to date, this Essay analyzes the level of concentration of labor-input markets in Europe and North America and provides a comparative perspective on employers’ monopsony power. It explores the characteristics of monopsony in labor markets and documents its impact by looking at the magnitude of employer concentration in selected jurisdictions. Using a harmonized dataset of online vacancies, this Essay shows that European labor markets are no more competitive than North American ones. It also supports the view that the effects of concentration on labor markets are broadly similar in both Europe and North America, despite the much stronger labor market institutions in Europe. The Essay shows that there is no apparent economic or legal justification for a lack of enforcement activity by European competition authorities in labor markets relative to the United States. While enforcement action has picked up in the last two years in Europe, there is likely still scope for a significant increase in the role of competition enforcement in labor markets. The Essay identifies sectors and practices that may be scrutinized with priority by European competition authorities and proposes a mix of enforcement, merger control, and well-targeted policy and regulatory solutions to address employers’ monopsony power. INTRODUCTION In both North America and Europe, competition policy has, until recently, most prominently focused on ensuring † Junior Economist, Jobs and Income Division, Organisation for Economic Co-operation and Development. †† Senior Economist, Jobs and Income Division, Organisation for Economic Co-operation and Development, and Research Fellow, IZA. ††† Economist, Skills and Employability Division, Organisation for Economic Co-operation and Development. ‡ Economist, Skills and Employability Division, Organisation for Economic Co-operation and Development, and KU Leuven. ‡‡ Competition Expert, Competition Division, Organisation for Economic Co-operation and Development. This Essay expresses the personal views of the authors. It does not necessarily reflect the official views of the Organisation for Economic Co-operation and Development or any of its Member Countries. The authors are grateful to the participants of the 2022 University of Chicago Law Review Symposium on Law and Labor Market Power for comments and suggestions. 339 340 The University of Chicago Law Review [90:1 well-functioning product markets and on capturing conduct on the supply side of the market.1 While most regimes allow capturing anticompetitive behavior by both buyers and sellers, the number of cases relating to product markets has been disproportionately higher, and, up until recent years, there had been practically no enforcement on the supply side of labor markets in Europe. Competition authorities, however, have generally assumed that labor markets are rather competitive2 and that labor monopsony power is a relatively infrequent phenomenon.3 Because, unlike market power on the seller side, buyer power may not necessarily reduce consumer welfare, the analysis of market power in the upstream market has also traditionally been understood in terms of countervailing buyer power, where cost reductions arising from a stronger bargaining position of the buyer visà-vis the seller would generally increase output and be passed on to consumers in the form of lower prices.4 1 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, PURCHASING POWER AND BUYERS’ CARTELS 6 (2022); Sergei Zaslavsky & Laura Kaufmann, Buyer Cartel Doctrine: Lessons from Labor Antitrust, COMPETITION POL’Y INT’L (June 29, 2021), https://perma.cc/JQ2T-BPRC. 2 ERIC A. POSNER, HOW ANTITRUST FAILED WORKERS 24 (2021). 3 When there are few employers competing in a market with each other, firms can employ fewer workers than in the competitive equilibrium and can offer lower wages. See William M. Boal & Michael R. Ransom, Monopsony in the Labor Market, 35 J. ECON. LITERATURE 86, 87–88 (1997). In “dynamic monopsony” or “modern monopsony” models, employers may be numerous, but workers cannot immediately quit an employer and instantaneously find a new one, either because of information asymmetries and other search frictions or because of explicit anticompetitive practices of firms (e.g., through collusion among employers and unjustified noncompete agreements). See Kenneth Burdett & Dale T. Mortensen, Wage Differentials, Employer Size, and Unemployment, 39 INT’L ECON. REV. 257, 268 (1998); ALAN MANNING, MONOPSONY IN MOTION: IMPERFECT COMPETITION IN LABOR MARKETS 270 (2003). Lastly, workers may have distinct preferences for firms besides the offered wage (e.g., different health insurance plans or “company culture”), which makes it difficult to quit and find an alternative suitable employer. David Card, Ana Rute Cardoso, Joerg Heining & Patrick Kline, Firms and Labor Market Inequality: Evidence and Some Theory, 36 J. LAB. ECON. S13, S15–16 (2018). 4 See, for example, the EU and the U.S. Horizontal Merger Guidelines, which provide for the application of competition law to both sides of the market but focus primarily on how the analysis should be conducted in downstream markets. Guidelines on the Assessment of Horizontal Mergers Under the Council Regulation on the Control of Concentrations Between Undertakings, 2004 O.J. (C 31/03) ¶ 61. See Case No. COMP/M.5046, Friesland Foods/Campina, Commission Decision of December ¶ 98. See also the former Section 45 of the Canadian Competition Act, which referred specifically to the sale of products, thus impeding its applicability to labor markets. Competition Act, R.S.C. 1985, c C34, s. 45 (Can.). An amendment of the law will enter into force on June 23, 2023, to criminally prohibit wage fixing and no-poach agreements between employers. See Guide to the 2022 Amendments to the Competition Act, GOV’T OF CANADA (June 24, 2022), https://perma.cc/NWC6-JRGS; see also Budget Implementation Act, 2022, No. 1 S.C. 2022, c 10 (Can.) (amending Competition Act of June 24, 2022). 2022] Labor Concentration Across the Atlantic 341 Monopsony power, however, is just as harmful to competition as monopoly is in product markets. Employer monopsony power— defined as the unilateral ability of employers to pay workers below the competitive level—reduces output and increases prices for consumers downstream unless the firm faces significant competition in the product market. Even when the product market is competitive, monopsony power still reduces productive efficiency, as it distorts how output is distributed between firms and harms workers by exploiting the lack of outside options for those workers (i.e., alternative jobs) to reduce wages and worsen working conditions. A shift in att (...truncated)