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  5. Firm Power and the Law: Wage Discrimination, Non-Competes, and Visas
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Firm Power and the Law: Wage Discrimination, Non-Competes, and Visas

Paper Session

Friday, Jan. 6, 2023 10:15 AM - 12:15 PM (CST)

Hilton Riverside, Steering
Hosted By: Labor and Employment Relations Association
  • Chair: Kate Bahn, Washington Center for Equitable Growth

Monopsony, Wage Discrimination, and Public Policy

Brianna Alderman
,
University of Florida
Roger D. Blair
,
University of Florida
Perihan Saygin
,
University of Florida

Abstract

A vast number of empirical studies have found that some degree of monopsony power is pervasive in labor markets. As a result, there is a certain amount of monopsonistic exploitation as defined by Joan Robinson. In some circumstances, the exercise of monopsony results in wage discrimination that is not due to prejudice. Instead, it is due to profit maximization in the presence of differences in the labor supply functions of the protected and unprotected groups. In this paper, we present this result in a general setting and explore several specific examples. The theoretical results of these analyses are consistent with the empirical literature.

At the federal level, public policy forbidding wage discrimination is contained in the Equal Pay Act of 1963, and Title VII of the Civil Rights Act of 1964. Although neither statute provides for public sanctions, violators of either statute are vulnerable to private damage suits. We examine the economic consequences of these public policies in two cases. First, we examine the consequences for profit maximization for an employer that obeys the law and ignores the differences in the labor supply functions. Here we find the possibility of multiple equilibria since the marginal expenditure function will be discontinuous. The resulting wage is between the wages paid to the favored and disfavored groups. Second, we analyze the consequences for a discriminating employer who is discovered and must eliminate the discrimination. The employer will be required to raise the wage of the disfavored group to equal the wage of the favored group. The result is analogous to a minimum wage equal to the favored group's wage. The employer will be unable to exercise monopsony power over a range of employment. Under some conditions, employment of the disfavored group will expand at the higher wage.

Regulatory Changes and Labor Market Concentration in the U.S. Agriculture Sector: Evidence from H-2A Workers

Candice Riviere
,
University of Chicago

Abstract

Recent developments in law and economics have shown that labor market power is a pervasive antitrust issue contributing to earnings inequality and slowed economic growth. In the agriculture sector, workers - especially H-2A temporary foreign agricultural workers - have consistently suffered from low, stagnating wages and poor working conditions. This paper evaluates the extent of labor market power in the agriculture sector, how antitrust law and immigration-policy norms exacerbate labor monopsony, and how regulatory changes might affect labor market conditions for vulnerable workers.

The paper first attempts to show that collusive labor market practices lead to more concentrated markets in agriculture. In fact, the data shows that labor markets that regularly hire H-2A workers are moderately or highly concentrated. Descriptive regressions of wages on labor market concentration confirm that a more concentrated labor market leads to lower wages.

Then, by measuring the impact of a significant regulatory change in the H-2 program, this paper finds that protective regulatory changes might have some of their intended effects. The difference-in-differences estimates show that the change in regulation decreased the demand for H-2A herders but increased the number of hours worked for those herders compared to other non-herder H-2A workers. While those results present only a partial view of the labor market dynamics at play, they tend to show that the 2015 change had the anticipated effect: by raising the costs of hiring H-2A workers, the demand for those workers dropped, potentially increasing labor demand for U.S. workers instead.

Wage Theft, Market Power, and Outsourcing: The Case of H-1B Workers

Jed DeVaro
,
California State University-East Bay
Peter Norlander
,
Loyola University-Chicago

Abstract

Wage violations against H-1B visa holders (i.e., cutting their wages below a legally required prevailing wage) is analyzed theoretically and empirically. The theoretical model suggests that violations are more likely when firms have less labor market power, and in subcontractor firms that have been outsourced work. New empirical evidence supports these predictions, revealing that 60% of firms with at least one violation are subcontractors and that the incidence of violations is 40-65% less likely in a monopsony versus a competitive market. The results have implications for how scarce monitoring resources could be prioritized to minimize violations against guest workers.

Small Business and the Minimum Wage

Jesse Wursten
,
KU Leuven
Michael Reich
,
University of California-Berkeley

Abstract

Discussions of minimum wages often take as axiomatic that they generate more difficult adjustment issues for small businesses. To test this assumption, we provide the first systematic causal examination of minimum wage effects on pay, employment and hours throughout the relevant firm size distribution. Our study first examines effects by firm size in the private sector as a whole, using teens and low-education workers as proxies for affected workers. We then
examine effects in the three three-digit industries with the highest percentages of low-wageworkers:restaurants, grocery stores and lodging{as well as in other low-wage industries. Our data on the size of businesses come from the Quarterly Workforce Indicators, the Current Population Survey and County Business Patterns. We exploit the variation generated by federal and state minimum wage changes between 1990 and 2019 and use three difference-in-differences
specifications. We do find larger wage increases among smaller businesses. But we generally do not detect significant effects in any of our business size bins on employment, hours or number of businesses. These results pertain both for the most affected workers in the private sector as a whole and for each of the three low-wage industries. We are unable to detect wage or employment effects in other low-wage industries. Our results are not affected by pre-trends and they pass multiple robustness tests. These findings cast doubt on the concerns of some
small business advocates with regard to minimum wage policy and on the need for special tax provisions for small businesses when minimum wages are increased.

Discussant(s)
Roger D. Blair
,
University of Florida
Peter Norlander
,
Loyola University-Chicago
JEL Classifications
  • J4 - Particular Labor Markets
  • J2 - Demand and Supply of Labor