Every month the U.S. Bureau of Labor Statistics releases data on hiring, firing, and other labor market flows from the Job Openings and Labor Turnover Survey, better known as JOLTS. Today, the BLS released the latest data for March 2022. This report doesn’t get as much attention as the monthly Employment Situation Report, but it contains useful information about the state of the U.S. labor market. Below are a few key graphs using data from the report.
The quits rate increased slightly to 3.0 percent as 4.5 million workers quit their jobs in March, an increase of 152,000 from the previous month.
With the number of job openings reaching a series high of 11.5 million and hires at 6.7 million, the vacancy yield decreased to 0.58 in March.
The ratio of unemployed-worker-per-job-opening declined from 0.55 unemployed workers per job opening in February to 0.52 in March.
The Beveridge Curve continues to be in an atypical range in March compared to previous business cycles, as the unemployment rate declined and job openings increased.
After decades of declining unionization rates and rising income inequality in the United States, the past few years have seen glimmers of the vibrancy of the U.S. labor movement in the late 19th century and early 20th century, fighting back against both corporate exploitation and shortcomings in the enforcement of labor laws and protections. In addition to boosting wages, leading to narrower income and wage divides, helping workers access income supports, and even fostering interracial solidarity, labor unions are one of government enforcement agencies’ most effective partners in fostering compliance with labor standards.
In short, unions today can be effective partners in ensuring government institutions protect workers and, in turn, foster equitable economic growth. Unions inform members and workers in general about the rights and protections they are entitled to by law, establish mechanisms to voice grievances with less risk of retaliation, and even help shape legislation.
But in order to be even more effective stewards of workers’ rights and protections, unions also need to operate in an institutional context that allows them to act as a countervailing force to the power of employers. But the decades-long decline in the union membership rates, judicial losses, and insufficient mechanisms to push back against employers’ (legal and illegal) union-busting strategies all hold back organized labor’s ability to protect workers.
Below are a few ways in which unions in the United States support the enforcement of labor standards, as well as the policies and reforms needed to ensure that they can carry out this critical role in the economy.
Unionized workplaces are more likely to follow health and safety standards
Even prior to the massive public health risk to in-person workplaces imposed by the COVID-19 pandemic, several studies found that labor unions promote the enforcement of health and safety regulations. For instance, a 1991 paper by David Weil at Brandeis University finds that unionized shops are more likely to enforce the Occupational Safety and Health Act than otherwise-similar nonunion workplaces.
The reason, Weil proposes, is that the presence of a union increases the probability that employees call for a workplace inspection by the Occupational Safety and Health Administration. Inspections, in turn, lead to greater supervision of workplace conditions and create a strong incentive for employers to comply with health and safety standards. A key point from this research is that unions do not displace the necessity of workplace protections but increase compliance.
Further, a number of studies show that the benefits of safer unionized workplaces have ripple effects that benefit broader society. For instance, a study analyzing patient outcomes in unionized and nonunionized hospitals in California between 1996 and 2005 finds that the quality of service was substantially better in hospitals that had a successful union election.
More recently, a team of researchers studying the spread of COVID-19 in schools and nursing homes find that the presence of unions is associated with the adoption of mask mandates, as well as with better health outcomes for both nursing home residents and workers. Specifically, the researchers find that unionized nursing homes experienced 10.8 percent lower resident COVID-19 death rates and 6.8 percent lower COVID-19 infection rates among workers than nonunionized nursing homes.
Unions protect workers against wage theft
Labor law violations, such as wage theft, are an alarmingly common feature of the U.S. labor market. A team of researchers studying wage theft during the Great Recession of 2007–2009 and its immediate aftermath, for example, found that the probability that a low-wage worker was paid less than their applicable minimum wage stood between 10 percent and 22 percent. In addition, the authors found that wage theft is especially likely to affect low-wage workers from vulnerable groups, with workers of color, non-U.S. citizens, and women all having a higher probability of experiencing wage theft than White workers, U.S. citizens, and men. (See Figure 1.)
Figure 1
Yet the evidence also shows that unions can push back against wage theft by both promoting pro-labor legislation and by establishing partnerships with enforcement agencies and community organizations. Scholars at the University of Illinois at Urbana-Champaign find, for instance, that states with greater union membership rates are more likely to introduce and pass legislation against wage theft. The reason, the authors propose, is that labor unions provide advocates with political power that make the enactment of wage theft legislation more likely.
Indeed, coalitions with worker centers, unions, and advocacy groups allow for what Janice Fine, Jenn Round, and Hana Shepherd of Rutgers University and Daniel Galvin of Northwestern University call co-enforcement—partnerships that give government agencies access to essential information for detecting and investigating labor law violations.
Violations to labor standards contribute to inequality, but unions can push against both lack of compliance and wage disparities
By contributing to the enforcement of labor standards, unions also temper disparities in wages and job quality. In recent research, Ioana Marinescu at the University of Pennsylvania, Yue Qui at Temple University, and Aaron Sojourner at the University of Minnesota find that higher average wages, lower labor market concentration, and a higher union coverage rate are all associated with fewer labor violations.
Specifically, the authors analyze data on violations of labor rights enforced by the Occupational Safety and Health Administration, the Wages and Hours Division of the U.S. Department of Labor, and the National Labor Relations Board. They find that higher union coverage rates have a “protective effect,” reducing the prevalence of violations. As such, the authors propose, “[o]ur results suggest that job quality is positively correlated with the wage and is boosted by unionization.”
In addition to improving the enforcement of statutory workplace protections at the federal, state, and local levels, unions’ collective bargaining agreements also are a tool for helping workplaces function more efficiently and equitably through establishing standards. The greater wage transparency that comes along with agreed-upon wage determination in collective bargaining agreements, for example, can reduce arbitrary wage disparities, particularly by gender. These mechanisms are part of the reason unions help reduce the gender wage gap, since unionized workplaces have greater wage transparency.
Unions need institutional support to be effective in safeguarding labor rights
Despite unions’ important role in protecting labor standards—as well as raising pay and instilling norms of fairness and equity—outsized employer power and lack of institutional support for organized labor has, for decades, held back unions’ ability to counteract unfair and illegal employment practices. Research by Anna Stansbury at the Massachusetts Institute of Technology finds, for instance, that because the cost firms face when failing to comply with landmark laws, such as the Fair Labor Standards Act and the National Labor Relations Act, is relatively low, it is unsurprising that employers engage in illegal labor practices, such as firing workers for union organizing.
In an Equitable Growth working paper on how collective action interacts with monopsony, Mark Paul of New College of Florida and Mark Stelzner of Connecticut College also demonstrate how institutional support is a critical factor in ensuring unions can serve as a countervailing force in labor market dynamics.
Shortcomings in the enforcement of labor rights and protections hurt U.S. workers and the economy as a whole. Violations to labor standards are associated with greater inequality, higher employee turnover, and, of course, lower worker well-being. Outsized corporate power distorts markets and subverts economic growth. Yet the policies and protections designed to correct for these market failures are only as effective as their enforcement. By contributing to the compliance of labor standards and ensuring workers are partners in establishing efficient and fair workplaces, unions therefore improve labor market dynamics to reinforce broadly shared economic growth.
Equitable Growth is committed to building a community of scholars working to understand how inequality affects broadly shared growth and stability. To that end, we have created the monthly series, “Expert Focus.” This series highlights scholars in the Equitable Growth network and beyond who are at the frontier of social science research. We encourage you to learn more about both the researchers featured below and our broader network of experts.
The United States celebrates Labor Day in September, but May 1 is a day on which many other nations around the world celebrate worker power and labor movements. The first May Day in 1886 was marked by widespread demonstrations in the United States by workers demanding an 8-hour workday. Since then, unions have played an outsized role in securing adequate working conditions for the U.S. workforce, beginning in earnest in the early 20th century and building the middle class in the post-World War II era.
In the lead-up to this year’s May Day, this month’s Expert Focus is dedicated to scholars known for their research on worker power and labor movements, and the impact unions have on economic, income, and wealth inequality in the United States. These researchers are advancing the literature on such topics as labor and employment law, union strategies, unions and racial solidarity, immigrant organizing, and wage-setting processes.
The list below is certainly not exhaustive, and indeed, several distinguished scholars in this field have already been featured in previous editions of Expert Focus, including economists Arindrajit Dube at the University of Massachusetts Amherst, Alexander Hertel-Fernandez at Columbia University (on leave while serving as the deputy assistant secretary for research and evaluation at the U.S. Department of Labor), and William Spriggs at Howard University and the AFL-CIO.
Kate Andrias
Columbia Law School
Kate Andrias is a professor of law at Columbia Law School. She recently served as commissioner and rapporteur for the Presidential Commission on the Supreme Court. Her areas of expertise are in constitutional law, labor and employment law, law and social movements, and law and democracy. In particular, her work looks at the failures of U.S. law to protect workers’ rights, the historical and contemporary labor movements’ efforts to transform legal structures, the tie between the Constitution, inequality, and political economy, and the relationships between the law and the perpetuation of economic inequality. Andrias has written extensively on labor law and political organizing, including an in-depth overview, published in The Yale Law Journal, of the early Fair Labor Standards Act of 1938, its relationship to collective bargaining, and its role in building the U.S. labor movement. She previously worked for several years as an organizer for the Service Employees International Union.
Kate Bronfenbrenner
Cornell University
Kate Bronfenbrenner is the director of labor education research and a senior lecturer at Cornell University’s School of Industrial and Labor Relations. She is also the co-director of the Worker Empowerment Research Project, which will be releasing a policy report on the state of labor organizing and collective actions in May 2022. Her research explores union strategies and labor relations; labor, race, and gender; and the impact of labor laws and trade policy on employment, wages, and unionization. Her most recent book focuses on union and employer strategies on organizing and bargaining in the global economy, and she has edited and co-authored several peer-reviewed books on these and similar issues. Bronfenbrenner also worked for many years as an organizer and union representative. In 2015, she received an Equitable Growth grant to study the gains that low-wage workers—and especially women and workers of color—make when they join unions in terms of wages, benefits, health and safety protections, grievance procedures, training and skill-building, and work flexibility and regularity.
Jake Grumbach
University of Washington
Jake Grumbach is an assistant professor of political science at the University of Washington. His research focuses on political economy, with a particular interest in public policy and race. Recently, he has studied labor unions and business, political and economic inequality, and race and gender in campaign finance. Grumbach contributed a chapter, along with political scientists Paul Frymer at Princeton University and Thomas Ogorzalek at TKO Research, to The Cambridge Handbook of Labor and Democracy on how unions can help White workers become more racially tolerant—a topic on which he also published an article (co-authored by Frymer) in 2021 in the American Journal of Political Science that was highlighted by Equitable Growth. They find that union membership, in addition to upholding labor standards, boosting wages, and addressing economic inequality, also works to promote racial solidarity and foster support for public policy that benefits Black workers, families, and communities, such as affirmative action.
Ruth Milkman
City University of New York Graduate Center
Ruth Milkman is a distinguished professor of sociology and chair of the Labor Studies Department at the City University of New York. Her area of study centers on labor and labor movements in the United States, including low-wageimmigrant labor, women workers and gender inequality, and unionization among auto workers in the 1980s and 1990s. She also studies paid family and sick leave policies and violations of employment and labor law. Milkman received a grant from Equitable Growth in 2020, along with Suresh Naidu and Adam Reich at Columbia University and Luke Elliot-Negri at the Graduate Center of the City University of New York, to study the effects of collective action and worker power on platform businesses—specifically, those related to food workers, such as Instacart—as well as public perception of these workers and jobs amid strikes and worker safety concerns during the pandemic. She also received a grant in 2014 to study the effects of paid sick days on workers and their families in New York City.
Suresh Naidu
Columbia University
Suresh Naidu is a professor of economics and international and public affairs at Columbia University. His research lies in the economic history of slavery, unions, and other U.S. labor institutions, intergenerational mobility and the dynamics of inequality, monopsony in the United States, and the economic effects of political transitions. He recently co-authored “Unions and inequality over the 20th century: new evidence from survey data” in the Quarterly Journal of Economics, which constructed the first data on individual union membership during the rise and heyday of union power, showing that union density was an important force driving the increase in economic and racial equality in the mid-20th century. Naidu has received multiple grants from Equitable Growth as part of research teams to study the role of unions in defining contract language, worker power and collective action in platform businesses, and monopsony’s role in the low-wage labor market. He also co-authored an essay as part of Equitable Growth’s Vision 2020: Evidence for a stronger economy book of essays, in which he and co-author and Equitable Growth grantee Sydnee Caldwell of the University of California, Berkeley dissect the wage and employment implications of monopsony and offer policy solutions to combat these consequences.
Jake Rosenfeld
Washington University in St. Louis
Jake Rosenfeld is a professor of sociology at Washington University in St. Louis. His research focus is on the political and economic determinants of inequality in the United States and other advanced democracies. He looks at wage-setting across time and place and the role of unions and the consequences of the decline in labor power in the United States, including the racial wage divide. In March 2021, Rosenfeld joined Equitable Growth’s director of labor market policy and chief economist Kate Bahn for a conversation on the role of power in setting wages, policy ideas to improve pay-setting practices for U.S. workers, and more, including his most recent book, You’re Paid What You’re Worth and Other Myths of the Modern Economy. The book outlines incorrect assumptions around how wages are set in the U.S. economy, placing power and social conflict at the heart of economic analysis.
Equitable Growth is building a network of experts across disciplines and at various stages in their career who can exchange ideas and ensure that research on inequality and broadly shared growth is relevant, accessible, and informative to both the policymaking process and future research agendas. Explore the ways you can connect with our network or take advantage of the support we offer here.
Michelle Holder Washington Center for Equitable Growth Testimony before the Joint Economic Committee, Hearing on “Building on a Strong Foundation: Investments Today for a More Competitive Tomorrow”
April 27, 2022
Introduction
Thank you, Chair Beyer, Ranking Member Lee, Vice Chair Heinrich, and members of the Joint Economic Committee, for inviting me to speak today. It’s an honor to be here virtually.
My name is Michelle Holder. I am the president and CEO of the Washington Center for Equitable Growth, an organization that seeks to advance evidence-backed ideas and policies that promote strong, stable, and broad-based economic growth. I also serve as an associate professor of economics at John Jay College, which is part of the City University of New York.
Since 2013, Equitable Growth has provided more than $7 million in grants to more than 300 researchers aiming to understand how economic inequality—in all its forms—affects growth and stability. The evidence demonstrates that the decades-long trend of increasing inequality hurts both families and the long-term trajectory of the U.S. economy.
Crucially, this trend is not the result of natural, iron laws of economics. Rather, increasing inequality is the result of a long history of policy decisions that have prioritized ideology over evidence. Making different policy decisions—such as robust government investments—can help reverse inequality and make our economy stronger and more resilient.
In what follows, I will detail how the federal government has already begun to make these different policy choices during the current economic recovery from the COVID-19 recession. I will then focus on two key areas where government investments can build on the foundations of the recovery and play a critical role in promoting economic growth that can be shared by all—the manufacturing sector and green energy, with particular attention to manufacturing’s past and green energy’s future. As I will demonstrate, investments in both of these sectors are vital for promoting racial equity and boosting economic growth.
Indeed, the costs of inaction are severe. Mary Daly—president and CEO of the Federal Reserve Bank of San Francisco—and colleagues examine differences from 1990 to 2019 among White, Black, and Latinx men and women ages 25 to 64, and find if economic outcomes and opportunities were more equitably distributed, nearly $23 trillion would be added to the U.S. economy. Further, writing for Equitable Growth, Robert Lynch of Washington College finds that closing racial and gender disparities would result in an increase in U.S. Gross Domestic Product by $7.2 trillion and would have totaled $28.6 trillion instead of $21.4 trillion in 2019.
Lynch also finds that federal, state, and local tax revenues would have been $1.82 trillion higher in 2019 while the overall U.S. poverty rate would have dropped from 10.5 percent to 6.6 percent, lifting 12.2 million people out of poverty in 2019. What’s more, there would have been a $429 billion improvement in the finances of the U.S. Social Security system in 2019.
Government investments are an essential tool for helping to attenuate these disparities and are therefore an essential tool for strengthening our economy. We need to look no further than the present moment to understand the powerful role that government investments can play.
A strong recovery
The COVID-19 recession was quite unlike business cycle downturns of the past. When the pandemic began to spread across the United States in March 2020, its impact was immediate and severe. The U.S. unemployment rate skyrocketed from a 50-year low of 3.5 percent in February 2020 to a post-Great Depression high of 14.7 percent in April of that same year. Over the same period, the U.S. labor market shrank by more than 20 million jobs. Industrial production plummeted. And the U.S. economy contracted by 3.4 percent in 2020—the worst economic downturn since 1946. Job losses did not closely follow patterns from past recessions.
The COVID-19 recession also entrenched disparities in U.S. labor market outcomes for women of color, especially Black women. As my colleagues Janelle Jones, former chief economist of the U.S. Department of Labor, Thomas Masterson of the Levy Institute, and I find, Black women were bearing the brunt of early job losses during the pandemic. This was primarily due to occupational segregation. That is to say, there exists an overrepresentation of Black women in certain industries and occupations as a result of a myriad of factors, including the systemic devaluation of certain kinds of work, discrimination, and uneven occupational integration.
Even prior to the pandemic, Black women experienced significant occupational segregation, with five occupations accounting for more than half of all the jobs in which Black women work. This is consistent with a large body of economic literature that shows women, including Black women, tend to be crowded primarily in low-wage occupations. My colleagues and I find that this already-high occupational segregation worsened during the pandemic and ensuing recession. The extraordinary nature in which economic activity was slowed or halted—particularly among the kinds of service-sector and care jobs that could not be performed remotely—disproportionately affected Black women precisely because they were more likely than many other demographic groups to be employed in these service and care occupations. More than half of all employment losses for Black women were concentrated in just four occupations in which women, generally, are crowded.
The COVID-19 recession therefore reflected and reproduced existing occupational segregation, leading to disparate U.S. labor market outcomes and uneven job losses. At the onset of the pandemic, occupational segregation by race and gender all but ensured that the COVID-19 economic decline was not equally shared.
Nevertheless, the unprecedented recession was met with an unprecedented recovery. In the 2 years that followed, the U.S. government enacted major pieces of legislation to respond to dual health and economic crises. The COVID-19 recession officially ended in April 2020, but the federal policy response extended well into 2021 to ensure a robust economic recovery. By the end of 2021, real U.S. GDP annual growth hit 5.7 percent.
Between March and April 2020, the U.S. Congress passed four major pieces of legislation, the most consequential of which being the Coronavirus Aid, Relief, and Economic Security Act. The CARES Act included provisions to expand eligibility and provide extra support to workers through the Unemployment Insurance system, additional funding for food assistance through the Supplemental Nutrition Assistance Program, loans and guarantees for small businesses through the Paycheck Protection program, and Economic Impact Payments.
The next year followed with the American Rescue Plan, signed into law in March 2021. It included an extension of many CARES Act programs, as well as new initiatives such as the expansion of the Child Tax Credit. The unprecedented speed and size of the American Rescue Plan and the CARES Act helped millions of workers and households withstand the economic pain brought on by the COVID-19 pandemic.
The bounce back in GDP, for example, was much quicker in the United States than in most other high-income countries. The overall average unemployment rate is now close to its pre-pandemic level. And workers in the bottom of the wage distribution have been experiencing real wage growth. Labor demand has skyrocketed, giving workers more power to negotiate higher pay and better working conditions.
As such, job openings in the United States reached a record high of 11.1 million in July 2021—an almost 60 percent increase from February 2020—and have remained elevated since. The jump in open positions has been particularly stark in industries such as manufacturing and leisure and hospitality. Indeed, the recovery in overall employment has been extraordinarily quick, compared to previous U.S. economic downturns. (See Figure 1.)
Figure 1
One of the more powerful policies that came from the federal government’s response was the expansion of the Child Tax Credit. By providing families with monthly income support to supplement their own earnings and help offset rising prices, the enhanced credit lifted an estimated 3.7 million children out of poverty. It also helped reduce racial disparities in household income, as poverty rates fell drastically for Black and Latinx children. This type of policy is a clear blueprint for success.
While inequities in the U.S. labor market remain persistent, employment gains made by Black women and Latina workers suggest the recovery efforts are reaching those who are often the last to recover from a recession at a much quicker pace than previous recessions. The fiscal response to the COVID-19 pandemic is directly responsible for the swift recovery we’re experiencing today. With economic growth still strong, there exists a real opportunity to continue to make government investments to ensure the recovery is not just strong, but also equitable and thus more enduring. (See Figure 2.)
Figure 2
Manufacturing
The government investments fueling the recovery from the COVID-19 recession represent just one potential pillar for promoting a stronger and more resilient economy. Government investments in the manufacturing sector represent another.
It is well understood that investments in manufacturing played a large role in driving U.S. economic growth in the 20th century. The period of the highest rates of annual economic growth was during World War II—peaking at 18.8 percent in 1941—when the government had a considerable and essential hand in planning industrial policy. Yet three key elements of this story are often overlooked.
First, government investments in manufacturing had a significant role in expanding economic mobility for the U.S. population. Second, the gains accruing to Black workers as a result of this transformation were short-lived, attenuated in future generations by racist policies that prioritized policing over social infrastructure. Third, the widely reported loss of jobs in the manufacturing sector in the 1990s and beyond had racially disparate effects, especially in the Black community. I will briefly unpack each of these key elements in turn.
During World War II, the U.S. government financed an industrial expansion that resulted in a threefold increase in manufacturing output over 4 years. Economists Andrew Garin of University of Illinois at Urbana-Champaign and Jonathan Rothbaum of the U.S. Census Bureau examine the effects of these government investments in manufacturing plants on mobility in the postwar period. They find that in U.S. counties where these plants were built, employment rose by 30 percent and average production wages rose by 10 percent after the war, with both remaining elevated through 2000.
They also find that in places where these plants were built, upward intergenerational household income mobility for children born to parents with below-median family incomes in 1940 increased. By helping support better-paying jobs, these investments proved to be a critical factor in achieving economic mobility for some workers.
Manufacturing also has historically been a sector that provides the dual benefit of economic mobility for Black male and Latino workers without a college degree and a driver of productivity growth for the overall U.S. economy. From 1910 through 1970, more than 6 million Black Americans migrated from the South to Northern, Midwestern, and Western states during what is known as the Great Migration. The period of 1940 to 1970 was particularly stark, with more than 4 million Black Americans migrating during this time.
The drivers behind the Great Migration are myriad, including attempts to escape the overt racial violence of the Jim Crow South and seeking economic opportunity in Northern industrial cities. As explained by historian Joe William Trotter Jr. of Carnegie Mellon University, from the beginning of World War I through 1930, Black workers increased from 600 in the auto industry to nearly 26,000, from 17,400 to 45,500 in the steel industry, and from 5,800 to 20,400 in the meatpacking industry.
Due in part to the expanding employment in the industrial and manufacturing sectors, some Black workers referenced Northern, Midwestern, and Western cities in terms such as “Promised Land,” “New Jerusalem,” “Land of Liberty,” “Land of Hope,” or “land of milk and honey.” The economic data suggest this conceptualization of economic mobility was partially true, at least for a moment. Economist Leah Boustan of Princeton University highlights that some estimates indicate Black agricultural workers migrating from the Southern United States who switched to an industrial occupation in the North were able to increase their earnings by as much as 300 percent. Using cutting-edge empirical research, Boustan finds that when accounting for standards and costs of living, a Black man from the South could have increased his earnings by 130 percent by moving North in 1940.
And yet these increased earnings did not necessarily translate into long-term gains. In a working paper, Princeton University economist Ellora Derenoncourt finds that while the first generation of migrants profited from a mass exodus from the South, the gains they accrued and hoped to pass on to their children were slowly eroded for several reasons, especially related to Northern White civil society backlash to the Great Migration. In the wake of the Great Migration, Northern cities funneled public funds toward policing while investment in social infrastructure stagnated. Simultaneously, White flight to the suburbs and an overall erosion of the urban environment helped transform destination metropolises of the 1940s and 1950s into highly segregated opportunity deserts by the 1990s and 2000s.
Moreover, despite economic gains made during the Great Migration, Carnegie Mellon’s Trotter highlights the discriminatory working conditions that Black workers still faced during this time, with managerial and labor policies ensuring the racial stratification of the workforce. Steel industry supervisors, for example, arbitrarily fired Black workers and replaced them with White workers. One Detroit automaker proclaimed, “We hired them [Black workers] for this hot dirty work and we want them [to stay] there. If we let a few rise, all the rest will become dissatisfied.”
When recognizing the historical importance of the manufacturing sector for providing a path for upward mobility—with increased wages in union jobs—it is equally important to recognize the structural and policy factors maintaining racial stratification and limiting mobility.
Nevertheless, manufacturing remains an important sector in which to invest because of its pathways for mobility and clear effects on economic growth. A recent Economic Policy Institute report finds that Black, Latinx, Asian American and Pacific Islander, and White workers without a college degree all earn substantially more in manufacturing than in nonmanufacturing industries. For median-wage, non-college-educated employees, Black workers in manufacturing earn $5,000 more per year—or 17.9 percent more—than in nonmanufacturing industries. Latinx workers earn $4,800 more per year, or 17.8 percent more. AAPI workers earn $4,000 more per year, or 14.3 percent more. And White workers earn $10,100 more per year—29 percent more than in nonmanufacturing industries.
This “manufacturing premium” is due in large part to higher rates of unionization in the manufacturing sector, which help to correct for artificially suppressed wages brought on by employers’ power to underpay workers. In a separate report, Lawrence Mishel of the Economic Policy Institute finds that, relative to other sectors, manufacturing workers have a benefits advantage, primarily in insurance and retirement benefits, and this advantage, in fact, increased from 1986 through 2017.
The problem is, manufacturing employment in the United States has been steadily declining for decades, and productivity in manufacturing has been slowing. The decline in manufacturing has been stark and its effects have been uneven. Economist Eric Gould, writing for The Centre for Economic Policy Research, finds that the decline in manufacturing between 1960 through 2010 led to a significant decrease in wages and employment for Black workers and a significant increase in racial gaps for labor market outcomes. The deterioration in high-paying jobs in the manufacturing sector, especially for men with less formal education, is substantial. Gould’s findings include a 13.3 percent decline in mean, full-time wages for Black men, an increase in the poverty rate of 8 percentage points for Black women, a 9 percentage point increase in poverty for Black children, a 12 percent increase in the racial wage gap for men, and a 3.4 percentage point increase in the racial gap in male employment.
Researchalso indicates that declines in manufacturing partially explain decreases in Black employment rates. Economist William Spriggs and his co-authors find that trade policies causing significant reductions in U.S. manufacturing employment disproportionately affected Black workers. In assessing the industries most exposed to these trade policies, such as manufacturing, they find a 3.2 percentage point reduction in the share of overall Black working-age employment (ages 15 to 64) for every 1 percentage point increase in import exposure.
The decline of U.S. manufacturing has led to both a decrease in the quantity and the quality of manufacturing jobs. This is due to a myriad of factors, including rising contingent work in manufacturing, anti-union “right-to-work” laws in locations with significant manufacturing in the South, and vulnerability to demand shocks. Further, research suggests that in recent decades, employers have used automation technologies in manufacturing and other industries not to increase productivity, but rather to de-skill jobs and lower wages.
Promoting job quality and worker power as a cornerstone of the manufacturing sector is critical to ensuring that previous benefits of a robust manufacturing sector are realized in the contemporary economy. Bolstering protections and pathways for labor organizing, such as the measures included in the Protecting the Right to Organize Act, will help ensure manufacturing includes worker voices on technological integration, support the connection between workforce training and employment, and ensure workers are sharing in the value that they create. Trade unions, for example, are effective partners in providing apprenticeships, continuing training, and portable benefits.
Government investments in “high-road” supply chains—that is, supply chain networks that collaboratively aim to benefit firms, workers, and consumers alike and, crucially, that do not suppress wages to compete—can help embolden worker power and stimulate broadly shared growth. Economist Susan Helper of Case Western Reserve University, writing for Equitable Growth, argues there is clear precedent for these kinds of investments. The U.S. government can act as a high-road purchaser and preferentially buy from companies that are innovative—as it did to jumpstart the semiconductor industry. The federal government also can require its suppliers to pay “prevailing wages,” as is required in government-funded construction by the Davis-Bacon Act—a requirement that helps support apprenticeships and training centers.
Government investments also could include offering technical assistance to its own and others’ suppliers by expanding the Manufacturing Extension Partnership, which provides technical support for small and medium-sized manufacturers, and the U.S. Department of Energy’s Industrial Assessment Centers, which help firms redesign their operations to conserve energy. Furthermore, investments in robust supply chains may also help curb inflationby helping to ease bottlenecks.
Without a robust manufacturing sector, broad-based growth will be difficult to achieve. One of the key drivers for productivity growth in manufacturing is innovation. Economist Mariana Mazzucato of University College London details that the most innovative firms have benefited the most from public investment. But research shows that the misallocation of talent in science and engineering—through harassment and discrimination, disparate access to development and training opportunities, and occupational segregation—are costly for the innovation workforce, and therefore for the manufacturing sector.
Addressing gender and racial disparities in access to advanced manufacturing jobs is essential to boost dynamism in the sector. For instance, economists Lisa Cook at Michigan State University and her co-author Yanyan Yang estimate that U.S. GDP per capita could rise by between 0.6 percent to 4.4 percent if more women and Black Americans were included in the initial stages of the innovation process.
These barriers are present across industries and education levels. Women make up about a quarter of the manufacturing workforce but are heavily underrepresented in some of the occupations that have historically provided a pathway to the middle class for workers without a college degree, such as machine tool operators and welders. Women also face sexual harassment at higher rates in male-dominated industries such as manufacturing, which obstructs on-the-job well-being.
While employment in the U.S. manufacturing sector is now near its pre-pandemic level, the erosion of the manufacturing earnings premium and bad-quality working conditions could lead to slow job growth in the sector in 2022 and beyond. While goods-producing sectors such as manufacturing did not see the massive employment losses that services-providing industries experienced in the first months of the pandemic, employment in the sector never fully recovered from the previous two recessions.
Indeed, manufacturing-sector employment reached its peak in the late 1970s and has been declining somewhat consistently ever since. Currently, employment in the sector is 35 percent below its 1979 level. Federal research and development spending is at a 60-year low, which means less knowledge creation, fewer good jobs, and a harder time boosting employment in new sectors. Investments in manufacturing—ranging from high-road purchasing, R&D spending, equitable trade policies, and tax subsidies—can therefore decrease inequities in the economy and help bolster growth.
Green energy
Building on the foundations of the economic recovery and the manufacturing sector, government investments in green energy, technology, and training can help address longstanding inequities by providing this pathway to workers of color today. With the current strong recovery, there is ample opportunity to make key investments in green energy that help to ensure growth is broadly shared and power imbalances in the U.S. labor market are addressed. Federal investments in energy research and development are low compared to prior years’ levels, and there is clearly room to invest.
Recent economic research demonstrates the importance of investments in green energy. For instance, Columbia University economist Joseph Stiglitz argues, alongside other colleagues, that renewable energy and energy efficiency investments typically have high multipliers, delivering even greater returns over time. They also create more jobs, including ones that can’t be taken offshore, such as those in home energy retrofitting.
Moreover, according to recent research from Heidi Garrett-Peltier, an economist at the University of Massachusetts Amherst, for every $1 million invested in renewable energy or energy efficiency, almost three times as many jobs are created than if the same money were invested in fossil fuels. Investing more money in the fossil fuel industry will not address high and growing unemployment rates. Indeed, the Federal Reserve is not even requiring companies to keep workers as a condition for getting loans in the fossil-fuel industry.
Investments in training also can be a path to ensuring the benefits of green energy are broadly shared. For instance, Historically Black Colleges and Universities, or HBCUs, are at the forefront of training for green energy jobs. Indeed, 24 percent of all Science, Technology, Engineering, and Mathematics, or STEM-related bachelor’s degrees earned by Black students in the United States were conveyed by HBCUs.
This type of training will be necessary to ensure that a transition to green jobs is equitable, but it is not sufficient. As the Washington Center for Equitable Growth’s Director of Labor Market Policy and Chief Economist Kate Bahn explains, inadequate wages are not the result of a skills gap, but rather derive from a lack of worker power to collectively bargain for fairer wages. Increasing wage floors and worker power will be key to ensure there is not simply access to green jobs, but also that these green jobs are equitable.
Writing for Equitable Growth, Leah Stokes and Matto Mildenberger, both assistant professors of political science at the University of California, Santa Barbara, outline ways to ensure that the high multipliers and job creation from green energy investments are equitably shared. One such mechanism is Community Benefits Agreements, which are contracts between large energy developers and communities hosting an energy project. These agreements require that the community receive a share of the project’s benefits.
In the few offshore wind developments in the United States, for example, these agreements are already in place. Policymakers could provide extra incentives for projects that receive government subsidies or tax benefits to negotiate Community Benefits Agreements. These agreements also could require minimum wage standards, unionization, or other equitable labor market arrangements.
Regarding union requirements specifically, Stokes and Mildenberger highlight that many U.S. unions maintain strong ties to carbon-intensive industries, such as auto manufacturing or heavy industry. By contrast, many jobs in the clean energy sector—from clean energy deployment to electric vehicle manufacturing—remain nonunionized. In part, this reflects secular decline in union participation across new U.S. economic sectors. In order to address labor market disparities—such as gender and race wage gaps—government funding for clean energy projects should prioritize unionized jobs.
In this vein, there is already precedent at the state level for ensuring green energy jobs are more equitable in labor market power. Washington state, for example, tied labor standards to tax incentives for renewable energy development through the Clean Energy Transformation Act in 2019. The bill contains, among other provisions, business tax incentives on high-road labor standards and practices, such as apprenticeship utilization, a prevailing wage, local hires, and the use of Project Labor Agreements and Community Workforce Agreements, helping to promote good jobs.
Conclusion
There is clear precedent and ample opportunity for government investments to promote growth and address the harmful consequences of economic stratification in our nation. To make the U.S. economy more resilient and equitable, we need to build off the strong foundations of the current recovery. I thank you for the chance to submit this testimony on how you can do just that in the manufacturing and green energy sectors.
This year’s Earth Day celebrations come on the heels of yet another devastating UN report detailing the consequences of climate change—and the global lack of action to mitigate its effects—for the planet. The report is not the first of its kind, but it is groundbreaking in its sober evaluation of what the world faces and how quickly it will be upon us unless drastic collective action is taken.
Reports such as these often spark a spate of new research on what the economic costs of climate change will be, estimates of the social cost of carbon, and other reviews of the macroeconomic implications of global warming. Yet a new working paper by economists Gregory Casey and Matthew Gibson at Williams College and Stephie Fried at Arizona State University’s W.P. Carey School of Business suggests that the existing models used in most of these studies may be underestimating the damages caused by climate change.
The paper, titled “Understanding Climate Damages: Consumption Versus Investment,” seeks to understand how the assumption of homogeneity in the economy—that is, the assumption that climate change affects all sectors and all types of industries equally—affects estimates of future damages in climate assessments. The co-authors develop a model that allows for different impacts of climate change on industries that produce consumption goods and those that produce investment goods, and analyze how this more nuanced model affects how we think about the costs of ongoing climate change.
Before diving into the details of the study, however, it is important to define the difference between consumption and investment goods. In simple terms, investment goods are those that are used in the production chain and thus have longer-term effects on economic growth and productivity. Consumption goods are typically consumed at the end of the production chain and then no longer provide economic benefits, so they have fewer downstream effects on growth.
A simple analogy is that an investment good is the machine that can bake several loaves of bread at once and continue to do so for many years, contributing to production for a long time, whereas the consumption good is a loaf of bread that, once eaten, has no further role in the economy. Of course, this overly simplistic explanation ignores that some goods can be both investment and consumption goods, just as some sectors can produce both investment and consumption goods.
Casey, Fried, and Gibson set out testing their theory by looking at one possible avenue through which climate change can impact future economic growth: heat stress. They examine how heat stress affects productivity in sectors for which workers largely perform their tasks outdoors—specifically, the agriculture, construction, and mining industries. The vast majority of production in these three sectors is of investment goods, and because production is outdoors, workers in these sectors are especially vulnerable to heat stress.
The co-authors build a model for estimating climate damages that is based on the standard models that aggregate production and assume homogeneity. These models were developed in the 1990s by Yale University economist William Nordhaus and are often referred to as DICE models, which stands for dynamic integrated climate-economy. Importantly, though, the three co-authors of the new study also craft a more complex model that allows climate change to differentially impact sectors that produce consumption or investment goods.
They then map projected temperatures in U.S. counties between 2020 and 2100. They use common heat stress guidelines from occupational safety organizations that define the relationship between heat and labor productivity to simulate the impact of climate change on productivity and growth in each sector. They do this for both the simpler, DICE-like model and the more complex model that separates consumption and investment productivity.
The results are telling. When consumption and investment goods are separated, heat stress from climate change has a significantly larger effect on future productivity, mostly because of its heightened impact on investment goods in these sectors. The co-authors’ model finds that by 2100, heat stress reduces investment productivity by 1.25 percent, whereas the simpler DICE model predicts a decrease of just 0.27 percent in the same time frame.
They also find the DICE model overestimates consumption productivity losses in the short term and underestimates them in the long term. They then quantify these effects and find that separating out consumption and investment increases the estimated welfare costs of these damages from heat stress by between 4 percent and 24 percent.
The co-authors note that they chose to study sectors that largely labor outdoors because these industries are more vulnerable to heat stress. Yet other research suggests that indoor jobs and industries may also be vulnerable to climate effects such as heat stress. A recent study by University of California, Los Angeles researchers R. Jisung Park and Nora Pankratz and Stanford University’s A. Patrick Behrer, for example, shows that high temperatures create increased risk for workers whether their jobs are primarily located indoors or outdoors.
Another important caveat to the study’s findings is that the co-authors only look at productivity damages from heat stress, which impacts investment goods more than consumption goods in the sectors they study. This is why the DICE model appears to underestimate the economic costs of climate change—because it smooths over the higher damages on investment productivity by assuming it is affected equally to consumption productivity. The co-authors note that other climate damages that vary across sectors—for instance, from flooding or draught—may generate worse outcomes for consumption than investment productivity.
In other words, their model demonstrates that if all climate change effects do indeed affect investment goods’ production more—as was the case in their study of heat stress—then the long-term growth impacts will be bigger than previously estimated because investment is critical to long-term growth. If, however, climate change affects consumption goods’ production more, then long-term growth will be less impacted, and existing models may even be overestimating the damages. It could even be the case that, all told, climate risk falls evenly across investment and consumption good production, balancing out the DICE overestimates and underestimates, which would then actually be accurately predicting the overall costs. More research is needed to ascertain which of these scenarios is actually occurring.
The upshot of this study from Casey, Fried, and Gibson is that macroeconomic modeling of climate change is in its very early stages and requires further development before it can estimate with certainty what the costs of climate change will be. The new working paper provides a potential path forward for the field in trying to understand what a more complex model will tell us about climate change and the economy. But further research on the different avenues for climate change to affect economic productivity and growth, as well as research into the effects on different sectors, is needed to clarify how climate really affects the economy.
Seven cities and one state have implemented Fair Workweek laws—legislation that aims to improve the quality of work schedules that employers offer to their workforce.1 If your jurisdiction is considering implementing a Fair Workweek law, you may be thinking about one or more of the frequently asked questions below. Fortunately, rigorous academic research has examined these questions and can provide answers.
FAQ one: What are the elements of schedule quality?
Social scientist Susan Lambert of the University of Chicago identifies five ways that work schedules can be low quality:3
Instability: The number of hours offered and timing of work vary week to week.
Unpredictability: Workers cannot anticipate when they will be scheduled to work.
Nonstandard timing: Scheduled hours occur early in the morning, late at night, or on the weekends.
Inadequate hours: Scheduled hours are too few to earn an adequate paycheck.
Lack of input: Workers have little or no say in when they work.
FAQ two: Do some workers prefer jobs with unstable or unpredictable schedules because they offer flexibility?
Logic suggests that offering schedules that are unstable or unpredictable provides flexibility to employers. Research suggests, however, that workers do not experience these types of schedules as flexible.
New research by sociologist Peter Fugiel at the University of Illinois looks at a nationally representative sample of workers in their 20s and 30s, and finds that workers in jobs with unstable schedules are 13 percentage points less likely to report having a flexible work schedule than they do in similar jobs with stable and predictable schedules.4 (See Figure 1.)
The same study finds that workers with unpredictable schedules are 17 percentage points less likely to report having a flexible schedule than they do in similar jobs with stable and predictable schedules. (See Figure 1.)
Figure 1
Fugiel’s research also shows that workers in unstable and unpredictable schedule arrangements report lower job satisfaction than they do in similar jobs with stable and predictable schedules.
FAQ three: Are workers compensated for taking jobs with less desirable scheduling practices?
Fugiel further finds that workers in jobs with unstable and unpredictable schedules receive approximately the same pay as they do in similar jobs with better-quality schedules.5 They do not receive higher pay to compensate for their lower-quality schedules.
FAQ four: Do these scheduling practices help businesses’ bottom lines?
Research finds that low-quality schedules do not help businesses become more productive and profitable.
Research examining the experience of low-wage, service-sector workers, for example, finds that turnover—which is costly to businesses—increases when schedule quality is low.6 (See Figure 2.) Other research finds similar trends across a wider range of industries.7
Figure 2
In fact, a randomized controlled trial conducted in partnership with The Gap, Inc. found that higher-quality schedules resulted in a 3.3 percent increase in sales and a total increase in store productivity of 5.1 percent.8
FAQ five: What are the consequences of low-quality schedules for workers and their families?
Research conducted by public policy professor Daniel Schneider of Harvard University and sociologist Kristen Harknett of the University of California, San Francisco finds that when low-wage, service-sector workers have unpredictable schedules, they are more likely to experience hunger.9 (See Figure 3.)
Figure 3
Schneider and Harknett also find that parents with unpredictable schedules struggle to find child care. (See Figure 4.)
Figure 4
Further, research by economist Elizabeth Ananat of Columbia University and psychologist Anna Gassman-Pines of Duke University examining service-sector workers with young children finds that unpredicted changes to schedules decrease parents’ sleep quality and increase their reports of experiencing negative moods.10
Because workers of color—and women of color in particular—are disproportionately exposed to unpredictable and unstable schedules, they are more likely to feel these consequences than other workers.11
FAQ six: Do Fair Workweek laws improve schedule quality?
Rigorous academic research finds that Fair Workweek laws do not completely eradicate low-quality scheduling practices, but they do significantly decrease their prevalence.
A study of the Fair Workweek law in Emeryville, California, finds that the ordinance decreased last-minute schedule changes and increased worker well-being—though some estimates did not reach statistical significance, perhaps because of the study’s relatively small sample size.12
Using a larger sample, an evaluation of Seattle’s Secure Scheduling Ordinance finds significant positive impacts.13 Seattle’s law increased the share of workers who know their schedule at least 2 weeks in advance by 11 percentage points and decreased the share of workers experiencing last-minute shift changes without pay by 13 percentage points.14
The implementation of the Seattle law was also associated with an 11 percentage point increase in reports of good sleep quality and a 10 percentage point decrease in the likelihood of experiencing a material hardship, such as hunger or housing instability.15
Justice Ketanji Brown Jackson made history today after the U.S. Senate confirmed her nomination to the U.S. Supreme Court by a vote of 53 to 47. The Senate vote sealed her position as the first Black woman to serve on the Supreme Court in its 233-year history. Justice Jackson’s confirmation gives the nine-member court four women and two Black justices for the first time ever. She will also be the first former public defender to serve on the nation’s highest court, its second-ever working mother, and its second former criminal defense attorney.
What will this array of historic signposts mean for jurisprudence on the high court bench? Justice Jackson’s history of public service, her demonstrated legal expertise on incarceration, and her lived experiences as a Black woman all make her perspective unique, one that differs greatly from the current justices on the court. And because the Supreme Court primarily takes cases that adjudicate social issues, it is important to underscore not just her experience as a public defender but also some of the research that highlights the link between one of the great social issues of our day: the legacy and immediacy of the consequences of mass incarceration of lower-income individuals and people of color in the United States on their well-being and intergenerational mobility.
The United States jails more people than any other nation in the world, with racialized criminal justice procedures in place and openly practiced throughout U.S. history and continuing today, writes Robynn Cox at the University of Southern California’s School of Social Work. Cox also notes that the exponential growth in incarceration in the United States over the past 50 years has been due to more punitive criminal justice policies that tried to address racial and economic inequality through the criminal justice system instead of social programming.
The consequences of harsh sentencing and mass incarceration are haunting. Convictions, for example, present huge barriers to lower income individuals and people of color who want to fully participate in the U.S. economy. According to research released by The Brookings Institution, “incarceration may impede employment and marriage prospects among former inmates, increase poverty depth and behavioral problems among their children, and amplify the spread of communicable diseases among disproportionately impacted communities.”
Mass incarceration also contributes to the lack of intergenerational mobility in Black communities and the growing racial wage divide. According to research by economists Mark Paul at the New College of Florida, Darrick Hamilton at The New School, and William “Sandy” Darity Jr. at Duke University, the wage gap between Black and White men is similar in magnitude to the gap between White women and White men: Black men receive just 76 cents on the dollar in hourly wages, compared to White men. Annual wage gaps are even larger. The authors point out that Black men are more likely to experience incarceration as a potential factor in this yawning wage divide.
In other research studying the connection between racial disparities in wealth and incarceration, Hamilton, and Darity, and their co-authors find that people with less wealth are more likely to be incarcerated than those with higher levels of wealth. They also find that the experience of incarceration has severe impacts on later wealth, but in ways that compound overall the racial wealth divide. For Black men and women possessing even relatively small amounts of wealth—$2,000—in their 20s and 30s, that amount of savings could dramatically reduce the odds of becoming incarcerated in the short term. Yet, the co-authors find, White people who have been incarcerated accumulate even greater wealth than Black people who have never been incarcerated.
Previously incarcerated individuals face great hurdles even once they have been released from prison. An Equitable Growth issue brief highlights the disparate racial impacts faced by convicted felons who are unable to vote. According to the brief, two states with largely White populations—Vermont and Maine—never take away felons’ right to vote, even while they are incarcerated. In the other 48 states, felons are subject to at least some voting restrictions, which have a profoundly disproportionate impact on Black Americans, who are targeted by the biased enforcement of drug laws and the country’s racist criminal justice system.
According to research by The Marshall Project, nearly two-thirds of the overall U.S. jail population are incarcerated because they cannot afford their bail or a bond. Furthermore, the median bond for Black defendants is often about $10,000 higher than it is for White defendants. This financial burden falls heavily on low-income women and people of color, who make up 69 percent of the pretrial population. When individuals and families are faced with these bills, they are unable to afford basic necessities, including transportation to and from work, further limiting them financially and contributing to homelessness and food insecurity.
The adverse effects of the overrepresentation of Black, Latino, and Native American people in the U.S. criminal system also have a profound impact on their families and communities. According to research by USC’s Cox, incarceration is associated with racial health divides and greater rates of food insecurity among households with children.
It is important for policymakers to address the criminal legal system’s disparate impacts on communities of color. But it’s also imperative that the judicial branch bring fair-minded expertise to bear on cases regarding the criminal legal system. The broad research reviewed here demonstrates the link between systemic racism, mass incarceration, and racial economic inequality.
While relying on the U.S. Constitution to place meaningful limits on policymakers, prosecutors, and judges is not new to the Supreme Court, Justice Jackson’s experiences and legacy as an advocate are groundbreaking. Her confirmation provides an opportunity—if not an invitation—to test the Supreme Court’s commitment to freedom and justice for all.
Testimony before the Select Committee on Economic Disparity and Fairness in Growth,Hearing on “(Im)Balance of Power: How Market Concentration Affects Worker Compensation & Consumer Prices”
April 6, 2022
Thank you, Chair Himes, Ranking Member Steil, and members of the Select Committee on Economic Disparity and Fairness in Growth, for inviting me to testify today. My name is Kate Bahn, and I am the director of labor market policy and the chief economist at the Washington Center for Equitable Growth. We seek to advance evidence-backed ideas and policies that promote strong, stable, and broad-based growth. Core to this mission is understanding the ways in which inequality has distorted, subverted, and obstructed economic growth in recent decades.
As the economy swiftly recovers from the economic crisis caused by the coronavirus pandemic, now is the time to leverage recent gains in the U.S. labor market to address longstanding deleterious trends of income inequality and wage stagnation for most workers. Mounting evidence from cutting-edge research in economics, which I will review today, demonstrates how the rising concentration of corporate power is a significant cause of these trends. Furthermore, rebalancing power toward workers and diminishing the power of companies to undercut wages will lead to more efficient outcomes, with growing incomes and higher employment levels, strengthening economic growth that is shared by all.
Introduction
Despite being one of the largest and wealthiest economies in the world, trends of rising income inequality and wage stagnation in the United States are evidence of a market failure. The hypothetical free market has dominated economic narratives because it tells an optimistic story: that competitive forces will ensure resources are located efficiently and workers are paid equivalent to the value they contribute. But economic evidence demonstrates this is not the world we live in.
High inequality in the United States results in an inefficient allocation of talent and resources while increasing corporate concentration that enriches the few as it also holds back the entire economy from its potential. Understanding the factors that lead to an intrinsically noncompetitive U.S. labor market and the forces that have allowed corporations to take advantage of this are key to crafting effective policy solutions.
To further examine the structural factors that have led to these economic conditions, policymakers need to understand an economic concept called monopsony. It sounds like the product market equivalent of the better-known concept of monopoly, but here, single buyers exert price-setting power instead of single sellers. As in a monopoly, this phenomenon is not limited to when a firm is strictly the onlybuyer of labor, but rather any time a buyer firm is able to engage in anticompetitive conduct or simply take advantage of noncompetitive features of a market to set prices—in this case, wages—lower than they would be in a hypothetical market where it would have to compete against other purchasers. Today, I will explain the circumstances and effects of employers having significant monopsony power over the market and over workers.
Monopsony is most commonly understood as a labor market phenomenon, though it also is present in markets for intermediary suppliers. Fundamentally, workers who sell their labor are different than other things that are bought and sold on the market. They are what Karl Polanyi referred to as a “fictitious commodity,” meaning labor itself is not made for the market but must be structured and conceptualized to align with market forces. In order to find employment, workers:
Need information about the jobs available and their attributes, and whether they align with workers’ talents and interests
Need to commute to work or move to a new location for a job
Must balance their work hours with other demands in their lives
Need to have a variety of job options from which to choose
Each of these things make up what economists call “labor market frictions,” and their inherent existence in the employee-employer relationship gives companies the ability to undercut wages without losing their entire workforce—which evidence suggests they readily do.
One recent survey of all the economic research on monopsony finds that, on average across studies, employers have the power to keep wages more than one-third lower than they would be in a perfectly competitive market. Put another way, in a theoretical competitive market, if an employer cut wages, then all workers would quit because other suitable employers would be competing to hire them, too. But in reality, these estimates are the equivalent of a firm cutting wages by 5 percent and only losing 10 percent to 20 percent of their workers.
These firm-level dynamics impact the entire structure of the U.S. economy. In one calculation with data from the United States, it was estimated that reducing firm-level monopsony power by one standard deviation would reduce overall earnings inequality by 9 percent. Another estimation finds that monopsony reduces the labor share of national income by 22 percent, which is quite a large impact.
The U.S. economy is in a unique moment to address these longstanding structural features. The unprecedented economic shock caused by the coronavirus pandemic has been followed by a rapid recovery in the U.S. labor market, with employment nearing its pre-pandemic levels and wage growth being experienced by low-wage workers, non-White workers, and young workers. Yet deep disparities remain, particularly along race, gender, and location. The persistence of monopsony demonstrates that market forces alone will not be enough to ensure recent gains will be permanent or shared equitably by all.
The causes of monopsony
This framework for understanding how the labor market functions when there is less than perfect competition was developed by the early 20th century economist Joan Robinson, one of the most well-known woman economists in history, in her book, The Economics of Imperfect Competition. The simplest way to understand monopsony is to consider a prototypical company town, such as a coal mining town in a rural area, where all the residents of that town work for the same company that owns the mine. This, in turn, gives that company the ability to undercut wages and keep working conditions poor since they know their workers are captive to accept this situation with no other employment options. This is the most extreme case, but it is important to note that firms have monopsony power in any circumstance where workers aren’t moving between jobs seamlessly in search of the highest wages they can get.
Firms can use monopsony power to lower workers’ wages any time workers:
Have few potential employers
Face job mobility constraints
Can only gather imperfect information about employers and jobs
Have divergent preferences for job attributes
Lack the ability to bargain over those offers
Each of these factors are common across the U.S. labor market to varying degrees. There is not a silver bullet when it comes to addressing the pervasiveness of monopsony, but understanding the specifics of each factor will help us consider how to develop a policy agenda that improves the structure of the labor market so workers are paid in accordance with the value they contribute.
Much has been made of the deleterious effects of increasing concentration in the U.S. economy, but the evidence for labor markets is ambiguous and largely depends on specific contexts, such as rural locations or highly concentrated industries. A well-cited study published in the Journal of Labour Economics by economists José Azar, Ioana Marinescu, and Marshall Steinbaum finds that 60 percent of U.S. local labor markets are highly concentrated as defined by U.S. antitrust authorities’ 2010 horizontal merger guidelines. (See Figure 1.)
Figure 1
Because most concentrated labor markets are in rural areas, this accounts for 20 percent of employment in the United States. Yet when understanding how corporate concentration impacts workers, we also need to consider the ability of workers to change occupations and industries.
Research by economists Gregor Schubert, Anna Stansbury, and Bledi Tsaka goes further by estimating workers’ outside options, given their current occupation and industry. This study finds that even with a more expansive definition of job opportunities, more than 10 percent of the U.S. workforce is in local labor markets where employer concentration leads to lower wages at least 2 percent. A significant proportion of these workers with few outside options are facing pay suppression of 5 percent or more.
Looking more precisely, this study finds that workers in certain occupations in highly concentrated industries, such as healthcare workers or security guards, face significant downward wage pressure due to a lack of outside options.
The impact of concentration in healthcare leading to lower wages for workers has been documented elsewhere. A working paper by economists Elena Prager and Matt Schmitt finds that hospital mergers led to negative wage growth among skilled workers, such as nurses or pharmacy workers. These factors structure the entire labor market. Research by sociologist Rachel Dwyer finds that job polarization in care work sectors—such as healthcare, which is heavily concentrated—is a primary cause of overall job polarization in the United States because there are fewer middle-income jobs and growing employment at the low end and the high end of the labor market. Downward pressure on wages in high-growth industries, such as healthcare, can impact employment opportunities for all Americans.
But concentration is not the only factor to consider when understanding how workers face constraints in moving between jobs. The broader phenomenon we are concerned with is, fundamentally, job mobility—the ability to easily move between jobs—that gives employers power to set wages below competitive levels. Job mobility can be limited by anticompetitive conduct, where employers institute practices explicitly designed to limit the ability of their employees to find other jobs or better-paid jobs—even when there are technically many employers in a local labor market.
Noncompete agreements, for example, in which workers sign away their right to go work for a direct competitor of their employer, have become pervasive, including among low-wage workers, where there is arguably no justification to limit worker mobility in order to protect trade secrets. Employers also collude with each other, both explicitly and implicitly, so they don’t raise wages to compete against each other for workers.
We know anticompetitive conduct impacts workers by looking at improvements to labor market conditions when this conduct is reduced. Research by economists Evan Starr and Michael Lipsitz finds that after the Oregon state ban on noncompete agreements in 2008, job mobility increased by 12 percent to 18 percent, and wages grew 4.5 percent more in occupations with high noncompete usage, compared to those with low noncompete usage. These agreements are often justified by arguing it may be beneficial to consumers, but recent research by economists Michael Lipsitz and Mark Tremblay finds that, given a noncompetitive economy, noncompete agreements may harm both workers and consumers.
Other factors influence mobility between jobs, including necessary benefits being tied to specific employers and not all employers offering such benefits, or limited income supports outside of work, which can leave workers in potentially desperate situations. Employer-provided healthcare, for example, discourages changing jobs, or what economists’ call “job lock.” Research by economists Adriana Kugler and Ammar Farooq finds that more generous Medicaid eligibility reduced job lock and increased the likelihood that workers changed jobs into higher-paying occupations.
Kugler and Farooq, along with economist Umberto Muratori, also find that generous Unemployment Insurance benefits improve job match quality, with stronger effects on women, non-White workers, and less-educated workers. Likewise, anti-poverty programs have been shown to improve labor market outcomes by improving job mobility. Reducing instability and credit constraints for workers who generally face more economic precarity helps those workers get into better jobs and improves the functioning of the labor market and the economy overall.
How much workers know about job opportunities also impacts competition for workers in the labor market. Asymmetric information between employers and workers, as well as the quality of information available to each party, shapes how workers sort between jobs. Workers tend to not have high-quality information about potential jobs or even the salary structure within their own workplace, whereas employers know what all their employees are paid and often require applicants to disclose their current salaries or competing job offers, giving them much more information to work with when offering or negotiating wages.
Then, there’s the “salary taboo” that discourages workers from asking their colleagues their salary or disclosing their own. All of this lack of information has real impact on wages, with one study finding that gender gaps in the likelihood of negotiating over wages are due to differences in information about pay.
And finally, what economists call “heterogeneous worker preferences,” where individual preferences for attributes of jobs are unique and varied, also give employers the power to undercut wages. Preferences are often actually constraints, such as a primary caretaker in a family requiring a job that aligns with children’s schedules or a worker who is more likely to face a hostile work environment making job choices based on avoiding harassment rather than the best possible income they can earn or the best use of their skills. Workers are not fully compensated for the trade-off between their preferences and the job offers employers make. But research on so-called compensating wage differentials finds that workers are not fully compensated for these imperfect trade-offs they make in their job choices.
How monopsony exacerbates economic disparities
The concentration of corporate power exacerbates economic inequality across the U.S. economy. Regional economic inequality between urban and rural areas or between different states is made worse when industries are concentrated in a geography or when a dominant employer sets labor market standards in areas with smaller populations. Workers facing hiring discrimination will have fewer job offers, so they’ll be forced to accept substandard opportunities that don’t make the best use of their talents or compensate them for their productivity.
Outside life circumstances, such as being a caretaker, may limit the scope of a worker’s job search to smaller geographic areas or limited work schedules. And having an unstable fallback position, without personal wealth or adequate income supports, can be exploited by employers who know their staff are just making ends meet. A recent leaked letter by a franchise executive made this explicit when he said that inflation increasing the cost of gas would be an opportunity to lower wages for workers whose paychecks are going less far. Employers are able to exploit these conditions by undercutting workers’ wages without risking losing their labor supply, amplifying the negative consequences of rising corporate power.
Employers that are able to exercise their monopsony power impact the entire economy. One illuminating example is the growth of Walmart Inc., the largest private employer in the country. Research by economist Justin Wiltshire finds that the opening of a Walmart Supercenter pushes down both earnings and employment across employers in the entire county where it was opened, compared to counties where a Walmart Supercenter was proposed but blocked locally. This exacerbates concentration as well, since county-level employment is reduced in the years following a Supercenter opening, so Walmart employs an even greater share of workers at low-road employer wages and working conditions.
Structural racism and sexism also shape these labor market dynamics. The myriad ways in which Black, Latino, Indigenous, and women workers of all backgrounds face economic precarity, in turn, shapes their labor market opportunities. My own research with economist Mark Stelzner examines how external conditions of structural racism and sexism have led to wealth inequality, which gives individual employers the ability to exploit workers along the lines of race, ethnicity, and gender since workers with less wealth cannot search for jobs as easily through taking time off to search or moving across locations easily. Facing more difficulty in searching for jobs means these workers are less likely to quit their current jobs even if they are not offering sufficient wages and working conditions. The recent elevated quits rate is a good sign for the health of the U.S. labor market, but market conditions are not sufficient alone to undo the reinforcing nature of historical economic exclusion faced by workers of color.
Mainstream economic orthodoxy argues that wages are set by competitive forces, so policies that constrain market forces would limit the potential for economic growth that comes from the market efficiently allocating talent and resources across the economy through the invisible hand. Yet research across social sciences indicates that the U.S. labor market is anything but competitive, leading to a misallocation of talent and lost opportunity for economic growth that would come from a dynamic labor market.
In fact, one insight from the monopsony framework developed by Joan Robinson is that raising wages and increasing worker power can increase both earnings and employment levels, leading to outcomes such as those predicted in a hypothetical competitive market. Research supports this, too. In the Walmart study by Wiltshire referenced above, increasing the minimum wage in counties with a Walmart Supercenter led to overall earnings and employment increases across the local labor market.
How to push back on the imbalance of power through complementary competition and labor policies
Addressing the imbalance of power in the U.S. economy requires a policy agenda that addresses both corporate competition and labor power. Recent research by economist Marcel Eckhard and Michael Neugart finds just this—there is policy complementarity between addressing anticompetitive firm behavior and boosting worker power. Addressing both does more than either mainstay can do alone, leading to real wage increases for workers.
Reversing the distortionary impact of corporate power starts with ensuring that the U.S. economy is competitive. Competition policy must include both beefing up U.S. antitrust enforcement capacity, as well as adopting a whole-government approach to fostering competition. This includes new laws that would codify, clarify, and strengthen antitrust law for labor markets. Without significant legal precedent for antitrust protections in labor markets, enforcers have little recourse to protect workers, but legislation can pave the way.
The Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice are not the only entities that can support competition. Across the federal government, agencies can use their jurisdiction to support competition across the economy, such as the U.S. Department of Agriculture or the Federal Communications Commission fostering competition within the industries they oversee.
But antitrust actions alone are not sufficient when the sources of monopsony power are intrinsic to people selling their labor as workers with multifaceted lives. For this reason, another important way to address the concentration of corporate power is to build countervailing power for workers. Balancing power leads to more efficient economic outcomes. One of the most effective ways to take advantage of balanced power improving labor market dynamics is improving the ability of workers to exercise collective action and negotiate collectively for improved wages and working conditions. This includes improving the ability of the National Labor Relations Board to enforce the protections that workers organizing unions should already have, as well as passing the Protecting the Right to Organize Act that would expand the ability of unions to organize workers. Unions limit employers’ ability to exploit workers along multiple axes.
One feature of monopsony that has been borne out in the research is that when wages are artificially suppressed, policy can statutorily raise the floor with tools, such as increasing the minimum wage and exploring the possibility of wage boards. In new research by economist Iain Bamford, a flat minimum wage increase across a regionally diverse economy improved conditions across the economy, including in locations that had lower median wages prior to the increase, leading to better equilibrium outcomes. This matters for equity broadly. As I have discussed in previous testimony before Congress, minimum wages have been shown to be a critical tool for reducing the wage divide between Black and White workers, and the falling real value of the minimum wage has exacerbated racial pay disparities.
These tools can be used along the wage distribution through wage boards, which would raise wages within occupations or industries, such as has been done in Arizona, Colorado, California, New Jersey, and New York. When market forces alone are not sufficient to ensure workers are being paid equivalent to the value they create, raising wages can promote the efficient allocation of resources when competition is inherently unable to do so.
Finally, giving workers protections against harms, such as harassment and discrimination, and ensuring all people have a minimum standard of well-being through social infrastructure policies would provide a stable foundation for a dynamic labor market. This includes effective anti-discrimination enforcement and workplace safety standards, so employers aren’t exploiting lack of competition by directly harming workers. This also includes family economic security policies that help families manage care needs and engage in the labor market, such as paid family and medical leave, paid sick time, accessible and affordable child care, and schedule stability, giving workers more space to find the best fit for their needs.
While portrayed as a work disincentive in public rhetoric, income supports such as these may actually have the opposite impact in a noncompetitive labor market, giving workers an outside option so they can find better jobs. Addressing the imbalance of power means using policy to improve worker and family outcomes, so corporations can’t exploit their power and ultimately limit U.S. economic growth and resiliency.
Contrary to what many of us were taught in Introduction to Economics courses in college and graduate school, markets are rarely perfectly competitive. In the case of the market for labor—a market that, it is worth noting, is fundamentally different from those where financial products or commodities are bought and sold—imperfect competition means that workers’ pay is solely determined neither by their productivity nor by the forces of supply and demand.
In recent years, rising interest in the causes, consequences, and policy implications of imperfect competition has sparked a new wave of research on a framework known in economics as monopsony. Kate Bahn, the director of labor market policy and chief economist at the Washington Center for Equitable Growth, defined monopsony in a briefing to congressional staffers last month: “Monopsony can be narrowly defined as any time there is one or few employers hiring workers, so they have considerable power to keep wages low since those workers do not have a lot of other options for jobs.”
But monopsony power, Bahn noted, is present not just when there are only a few employers in a particular labor market. Barriers that limit workers’ ability to move from job to job, incomplete or asymmetrical information about jobs, and discrimination are all factors that can give employers an upper hand when setting wages and, with it, the power to underpay workers.
Hosted by Equitable Growth on March 23, the briefing, part of a series dubbed “Econ 101,” introduced Hill staffers to labor markets under monopsony. During the presentation, Bahn first discussed how the assumptions that underpin the view that markets are perfectly competitive are rarely met. She then described the basics of the monopsony model and covered some of the empirical evidence on how monopsony affects the U.S. workforce and economy. And to wrap up, Bahn discussed the public policies that can counteract employers’ wage-setting power, boost competition, and deliver broadly shared economic growth.
The implications of monopsony for U.S. labor markets
So, what are the implications of monopsony for our understanding of how labor markets work? And what does imperfect competition mean for the design of effective and equitable economic policy?
Consider the basic supply-and-demand model of the labor market. According to this framework, when governments enact a wage floor, they artificially set wages at a level that reduces firms’ desire to hire workers. As demand moves away from equilibrium and up along the labor demand curve, people who would be willing to sell their labor at a “competitive” wage (the theoretical market rate) are unable to find work. In this hypothetical labor market, then, firms hire fewer workers than they want to, workers who would like to sell their labor cannot, and employment is lower than it would be under equilibrium. In economic terms, wage floors lead to socially inefficient outcomes. (See Figure 1.)
Figure 1
Further, under this model of perfect competition, employers are “price-takers,” meaning that they must accept the market wage and have no way of influencing it. The assumptions that underpin the perfectly competitive model of the labor market—for instance, that all market participants have perfect information, that all workers are able to seamlessly transition from job to job, and that wages are an accurate reflection of all workers’ productivity—also imply that workers are very sensitive to wages. In other words, an employer only needs to pay one cent more than its competitors to have an unlimited supply of workers.
At last month’s event, Bahn noted, however, that “if workers face frictions when trying to find a job—if workers do not know what jobs are available or face constraints in what kind of position they can take—then employers do not need to only pay one cent more than their competitors to have an unlimited flow of workers.”
Indeed, researchers document that various obstacles when trying to land a position, the concentration of a few employers in any given labor market, and employee preferences about job characteristics besides wages make workers much less sensitive to pay than the perfectly competitive model proposes. “In the actual labor market, employers do not have to offer pay raises or cost of living adjustments tied to inflation if they do not have to compete for workers,” Bahn told congressional staff.
In addition, empirical evidence shows that these noncompetitive forces affect U.S. labor market dynamics, with monopsony power giving employers the ability to pay wages below workers’ productivity. For instance, a team of economists at the University of California, Los Angeles, the Massachusetts Institute of Technology, and Burning Glass Technologies shows that more than 10 percent of the country’s workforce is in labor markets where lack of outside options for their current jobs leads to employer concentration, depressing these workers’ wages by at least 2 percent.
In other words, in parts of the country where relatively few employers are competing to hire, lack of competition pushes down average pay. Highly concentrated labor markets, another study finds, are especially pervasive in rural and less densely populated areas. (See Figure 2.)
Figure 2
Other studies highlight how one big employer can influence marketwide wages. For instance, research by economist Ellora Derenoncourt (now at Princeton University) and Clemens Noelke and David Weil at Brandeis University shows that as Amazon.com Inc. set a $15 minimum wage in late 2018, other employers in the same commuting zone had to increase wages. Amazon and other big and powerful employers, the authors find, can therefore act as a wage-setters rather than price-takers, pushing wages up or dragging them down depending on what their particular corporate policy is at a given time.
A study examining how the opening of Walmart Supercenters affects local labor markets captures how one firm’s monopsony power leads to worse labor market outcomes. The research finds that Supercenters lead to a decline in countywide employment and earnings as Walmart undercuts wages through low-road employment practices that spill over on other local workers and industries—a dynamic that was mitigated in the counties that experienced an increase in the minimum wage and that would not take place under perfect competition.
So, how does our model of the labor market change when we assume imperfect competition? Under monopsony, the labor demand curve and labor supply curve intersect at both a lower wage and at a lower employment level than would be achieved under equilibrium. This results in socially inefficient outcomes, where the lost wages due to underpayment are kept as firms’ profits, with workers making less than the value they contribute. Contrary to the perfectly competitive model of the labor market, in this model, higher wages also lead to greater equilibrium employment. (See Figure 3.)
Figure 3
In contrast to Figure 3 above, in a competitive labor market, if a firm tried to pay only “W monopsony” wages, then workers would go to other firms willing to pay a higher wage.
How policymakers can protect workers from monopsony power in the U.S. labor market
There are two broad areas of public policies that can counteract these forces and create greater balance between the power of employers and the power of workers: pro-competition policies and pro-worker policies.
Together, these policies will boost wages and increase job quality, increase competition and productivity, and drive broad-based economic growth.
To learn more about how monopsony affects the U.S. labor market, see the presentation slides from the March 23 congressional briefing here. For a write-up of a previous “Econ 101” briefing, on the effects of federal tax changes, see here.
