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PREFACE

The American labor market is broken. Even with an unemployment rate below 4 percent, the pre-COVID-19 economy featured millions of workers stuck in low-wage jobs with limited hope of advancing, pressured into conditions of employment like forced arbitration, on-call scheduling, and noncompete clauses. An increasingly fissured labor market has divorced many companies from their responsibilities as employers, exacerbating the long-term erosion in quality jobs. Rapidly increasing corporate concentration has tilted the playing field even more, sucking away much of the remaining bargaining power held by labor. Declines in union membership, coupled with state and federal antiworker regulation, further diminished labor’s negotiating position. And threats from everything from gig work to automation to outsourcing and offshoring further erode workers’ ability to negotiate for higher wages and an improved quality of work.

The COVID-19 pandemic has exposed and exacerbated shortcomings in the labor market. State unemployment insurance systems that were supposed to serve as a backstop for widespread layoffs were ill-prepared to handle the deluge of new applicants and exclude too many, even after Congress’s expansion in the CARES Act. Employers ignored workplace protections en masse as tens of millions of workers—some earning poverty-level wages—were called into work despite obvious and severe threats to their health. And with roughly 18 million workers presently out of a job, the fragile bargaining power that workers seem to have only in the hottest of economic expansions has quickly eroded.

Economic and legal scholars have generally stipulated that large swaths of the labor market face poor outcomes, but often disagree on why. Increased globalization, declines in union density, and a hollowing out of middle-wage jobs—sometimes ascribed to technical change—have all been advanced as plausible explanations. Indeed, careful research has documented the role of each of these factors. The purpose of this book is to explore in greater depth a fourth explanation: lack of labor market competition.

A competitive labor market has long been assumed as the norm, yet the underlying conditions appear wildly implausible to anyone who has worked or hired in the labor market, or studied how workers interact with employers. In a competitive labor market, firms are price-takers and simply accept wages set by the market—with no market power ever. Workers are always paid their marginal product or their economic value to the company. A worker underpaid by as little as one cent per hour can instantly leave that job and find an identical one paying the market rate. Workers are compensated for accepting restrictions on their employment conditions, such as the inability to accept a higher-paying job offered by a competitor. In the real world, these circumstances are so rare that a competitive labor market should more accurately be described as the lonely exception, rather than the pervasive rule.

The purpose of this book is to develop the components of the labor market that stifle competition, thereby depressing wages and diminishing quality of jobs. The book begins with a framing section that lays out the theory, evidence, and implications for lack of competition. Section II addresses specific topics related to competition, such as noncompete agreements and rising corporate concentration, also laying out recommended policy reforms to remedy the problems. Finally, section III examines the problems of labor market competition through an evidence-based lens, suggesting a path forward for federal and state policymakers to better understand and further study this critical issue.

Our primary hope for this book is that policymakers of all political leanings will regard it as a playbook for those who fiercely believe in the power of competition and who want to embrace reforms that allow workers to bargain for wages that match their economic contributions. We also hope it will serve as a testament to the power of cooperation between economists and lawyers, both sides with their own contributions—but with the ability to achieve a broader perspective through collaboration between disciplines.

The remainder of this preface delves into our own personal experiences that led us to this project. Sharon is a lawyer and Ben is an economist, so our perspectives were quite different when we met in the Obama White House in 2014. Despite different academic backgrounds and professional experiences, we coalesced around the notion of labor market competition since it seemed to explain so many of the trends that we witnessed in the labor market. As our White House partnership came to a close in January 2017, we both felt a deep-seated drive to continue working on this issue. The rest of the preface is the story of how this volume came to be.