Monopolies Are Not Taking a Fifth of Your Wages

President Biden, as part of his executive order on competition, directed the US Department of Treasury to report “on the effects of lack of competition on labor markets.” In March 2022, the Treasury released a report, “The State of Labor Market Competition,” concluding that “a careful review of credible academic studies places the decrease in wages [due to labor market power] at roughly 20 percent relative to the level in a fully competitive market.” Progressives use the report to justify much more aggressive antitrust enforcement, including in merger review, even though it presents virtually no viable evidence for the claim that industry concentration has played any role in this supposed 20 percent decline in wages. The report’s analysis is widely inaccurate, with Treasury analysts using every possible assumption to generate the largest possible estimate. The Treasury report provides some evidence for the presence of market power in labor markets but offers little support for the idea that this market power is due to labor market concentration or that firms are exercising monopsony power. Labor markets are not highly concentrated, nor has labor market concentration been increasing. Labor market frictions are an important source of market power and contribute significantly to a firm’s ability to suppress wages. Policy reform aimed at reducing labor market frictions and improving worker bargaining power is likely to be more effective at improving outcomes for workers than misguided policies aimed at reducing labor market concentration would be.

[Julie Carlson is Associate Director for Antitrust and Innovation Policy at the Information Technology and Innovation Foundation.]