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Employer Market Power: Theory and Evidence

Paper Session

Friday, Jan. 3, 2020 2:30 PM - 4:30 PM (PST)

Marriott Marquis, Grand Ballroom 13
Hosted By: American Economic Association
  • Chair: Matthew Gibson, Williams College

Theory and Evidence on Employer Collusion in the Franchise Sector

Orley Ashenfelter
,
Princeton University
Alan B. Krueger
,
Princeton University

Abstract

In this paper we study the role of covenants in franchise contracts that restrict the recruitment and hiring of employees from other units within the same franchise chain in suppressing competition for workers. Based on an analysis of 2016 Franchise Disclosure Documents, we find that "no-poaching of workers agreements" are included in a surprising 58 percent of major franchisors' contracts, including McDonald's, Burger King, Jiffy Lube and H&R Block. The implications of these no-poaching agreements for models of oligopsony are also discussed. No-poaching agreements are more common for franchises in low-wage and high-turnover industries.

Low Wage Workers and the Enforceability of Covenants Not to Compete

Evan Starr
,
University of Maryland
Michael Lipsitz
,
Miami University

Abstract

We exploit the 2008 Oregon ban on non-compete agreements (NCAs) for hourly-paid workers to provide the first evidence on the impact of NCAs on low-wage workers. We find that banning NCAs for hourly workers increased hourly wages by 2-3% on average. Since only a subset of workers sign NCAs, scaling this estimate by the prevalence of NCA use in the hourly-paid population suggests that the effect on employees actually bound by NCAs may be as great as 14-21%, though the true effect is likely lower due to labor market spillovers onto those not bound by NCAs. While the positive wage effects are found across the age, education and wage distributions, they are stronger for female workers and in occupations where NCAs are more common. The Oregon low-wage NCA ban also improved average occupational status in Oregon, raised job-to-job mobility, and increased the proportion of salaried workers without affecting hours worked.

Employer Market Power in Silicon Valley

Matthew Gibson
,
Williams College

Abstract

The falling labor share of income in the US has renewed interest in employer market power. I examine an important case of such power: no-poach agreements through which technology companies agreed not to compete for each other's workers. Exploiting the plausibly exogenous timing of a Department of Justice investigation, I estimate the effects of these agreements using double- and triple-difference designs. Data from Glassdoor.com permit the inclusion of rich employer- and job-level controls. Estimates indicate each agreement cost affected workers 2.6 to 4.0 percent of annual salary. Stock bonuses and worker mobility were also negatively affected.

Making Their Own Weather? Estimating Employer Labour-Market Power and Its Wage Effects

Pedro Martins
,
Queen Mary University of London

Abstract

The subdued wage growth observed over the last years in many countries has spurred renewed interest in monopsony views of the labour market. This paper is one of the first to measure the extent and robustness of employer labour-market power and its wage implications exploiting comprehensive matched employer-employee data. We find average (employment-weighted) Herfindhal indices of 800 to 1,100; and that less than 9\% of workers are exposed to concentration levels thought to raise market power concerns. However, these figures can increase significantly with different methodological choices. Finally, when controlling for both worker and firm heterogeneity and instrumenting for concentration, wages are found to be negatively affected by employer concentration, with elasticities of around -1.5%

Oligopsony and Government Employment Policy

Jose Azar
,
University of Navarra
Xavier Vives
,
IESE Business School

Abstract

We study the effects of government employment when firms are large and have market power with respect to both product and labor markets. Government hiring competes with hiring by oligopsonistic firms and tends to reduce the markdown of real wages relative to the marginal product of labor and/or the markup over marginal costs. This result is in stark contrast to the standard monopolistic competition model, where the markup is exogenously given (by the elasticity of substitution parameter) and is not affected by government policy. We also show that, as policy tools to raise employment, competition policy and government employment are substitutes.

In our model, government employment increases overall employment, that is, there is a multiplier effect. While the existence of a multiplier in the model is in a way similar to Keynesian models of fiscal policy under imperfect competition, the mechanism through which government employment increases overall employment in the Keynesian models is different. In those models, the multiplier does not operate by reducing firms' market power. Instead of competing with the firms in either the labor market or the product market, the government purchases consumption goods from the monopolistic firms, financed through lump-sum taxes. This fiscal policy shifts demand from a non-produced good (as in Hart, 1982) or from leisure (as in Startz, 1989 and in Mankiw, 1988) to the produced-goods sector, increasing demand for those goods; in turn, this shift increases income and generates higher-round effects that end up increasing overall demand in the produced-goods sector by more than the shortfall resulting from taxation. In our model, government spending---rather than increasing demand for the oligopolistic firms' products---increases competition for workers in the labor market and thereby reduces the market power of those oligopolistic firms. Hence wages increase, which leads to upward movement along the labor supply curve.
Discussant(s)
Ioana Elena Marinescu
,
University of Pennsylvania
Matthew Gibson
,
Williams College
Evan Starr
,
University of Maryland
Jose Azar
,
University of Navarra
Pedro Martins
,
Queen Mary University of London
JEL Classifications
  • J2 - Demand and Supply of Labor
  • J3 - Wages, Compensation, and Labor Costs