Weekend reading: “Monopsony and mobility” edition

This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is the work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

Equitable Growth round-up

In a new addition to our In-Conversation series, Economist Kate Bahn and Director of Markets and Competition Policy Michael Kades discuss market concentration and wage stagnation with economist Ioana Marinescu and law professor Herbert Hovenkamp of the University of Pennsylvania. In addition to reviewing recent research documenting how anticompetitive mergers exacerbate monopsony and drive down workers’ wages, they explain the role for antitrust law and policy to reverse this trend. The researchers conclude with suggestions for further research in the law and economics of labor market competition.

In his weekly worthy reads column, economist Brad Delong highlights recent publications by researchers at Equitable Growth and in our network along with other writing on macroeconomics. In particular, he discusses the recent report by Senior Director for Family Economic Security Elisabeth Jacobs and Senior Policy Advisor Liz Hipple detailing the substantial headwinds faced by many Americans seeking upward mobility throughout their childhoods and professional careers. Brad also points out Matt O’Brien’s article citing Equitable Growth grantee and University of California, Berkeley economist Gabriel Zucman’s extensive work on the use of tax havens by multinational corporations and the ultra-rich.

Links from around the web

In The Washington Post, Andrew Van Dam discusses further evidence that upward mobility is stagnant in the United States even for the most high-performing students from low-income families. Van Dam summarizes the findings of two recent genetic and economic studies demonstrating that genetic endowments associated with academic achievement are equally distributed across the income spectrum, but labor market success is concentrated at the top. Indeed, the evidence shows that the least gifted students from high-income families are more likely to graduate from college than the most gifted students from low-income families.

Brendan Greely of the Financial Times dives into another aspect of the mobility divide: social capital. Using frequent Equitable Growth guest authors and economists Raj Chetty, Nathaniel Hendren, and John Friedman’s recently published Opportunity Atlas as a starting point, Greely explains why relationships and communities are more important than the mere availability of jobs in determining economic mobility. Beyond enhancing a neighborhood’s services and amenities such as public schools, growing up in proximity to people with a diversity of highly paid jobs provides children with role models and connections to higher quality jobs and more numerous economic opportunities.

Noah Smith at Bloomberg takes up the individual and corporate tax cuts implemented in 2017 as another case study in the negligible effects of tax cuts on growth and wages. In addition to citing several studies testing this relationship, he contends that the minimal growth effects of tax cuts for the richest taxpayers will only decrease further in the United States as individual rates, which were already among the lowest in the developed world, reach new lows. Finally, Smith leverages several datasets to argue that the corporate tax cuts had virtually no effect on wages and other compensation for most workers.

Maureen Callahan at the New York Post points out that Amazon.com Inc.’s recent staff compensation decisions provide evidence of the firm’s growing market (and monopsony) power. While focusing on Amazon’s rapid expansion in a variety of markets in the past decade, Callahan considers the roles of a variety of prominent technology companies in driving market concentration. Callahan concludes with a quote from NYU business professor Scott Galloway positing that innovation in the workplace of the future will require the existence of truly competitive markets.

Friday Figure

Figure is from Equitable Growth’s, “Are today’s inequalities limiting tomorrow’s opportunities?”