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Book Review
August 2022

Antitrust enforcement and labor monopsony in the United States

How Antitrust Failed Workers. By Eric A. Posner. New York, NY: Oxford University Press, 2021, 207 pp., $29.95 hardcover.

Antitrust enforcement in the United States began in the late 19th century with the Sherman Antitrust Act of 1890, which prevented firms from engaging in anticompetitive market practices by prohibiting them from monopolizing markets and colluding to fix prices or reduce competition. Later, in an effort to supplement the Sherman Act and the Federal Trade Commission Act of 1914, Congress passed the Clayton Antitrust Act of 1914, expanding antitrust enforcement. Although antitrust laws apply to both product and labor markets, antitrust enforcement has mostly targeted product markets. Neglecting antitrust enforcement in labor markets has allowed firms to engage in practices that, by reducing competition for labor, diminish the market power of workers seeking employment. In How Antitrust Failed Workers, author and legal scholar Eric A. Posner examines antitrust law’s inability to protect workers from anticompetitive labor market practices, providing a thorough overview of labor monopsony and antitrust law as it applies to labor markets. Using recent data and research from various economic and legal scholars, Posner argues that antitrust, employment, and labor laws should undergo several reforms that would help increase labor market competition.

In chapter 1, the author explains the term “monopsony,” which refers to a market condition in which one buyer is the majority purchaser of goods and services. While the term can apply to any market, it is most often used in reference to labor markets. The effects of monopsony power on a labor market are comparable to the effects of monopoly power on a product market. For example, a monopsonist can set wages below a competitive wage value in a labor market just as a monopolist can set prices above a competitive price value in a product market. Posner identifies three sources of labor monopsony power: market concentration (a few employers dominating a specific job market), job differentiation (dissimilarity between jobs at different firms within the same market), and search frictions (the difficulty and cost of seeking employment). In chapter 2, Posner examines why antitrust laws have historically been applied much less frequently to labor markets than to product markets. He provides many potential reasons for this gap, elaborating on them in later chapters. He argues that while certain labor market practices and interventions (such as unionization and minimum-wage laws) can help curb monopsony power, nothing has sufficiently made up for the antitrust litigation gap.

Chapters 3 through 6 address specific features of antitrust law, detailing how they contribute to the litigation gap. Chapter 3 discusses section 1 of the Sherman Act, focusing on restrictions on collusion between firms. According to Posner, section-1 cases claiming wage fixing in labor markets are adjudicated at a rate 10 times lower than the corresponding rate for cases alleging price fixing in product markets. The author explains this difference with the higher difficulty of identifying collusion in labor markets than in product markets, contrasting the confidentiality of employee compensation with the availability of price data. He goes on to describe how conscious parallelism (i.e., firms tacitly changing their behavior or prices to match those of competitors) complicates wage-fixing cases and how no-poaching agreements (i.e., agreements among competing firms not to compete for one another’s employees) harm workers. He remarks that section-1 cases challenging no-poaching agreements are often more successful than wage-fixing cases. In chapter 6, Posner turns to aspects of section 1 that relate to noncompete agreements, which are contracts between employers and employees that prohibit the latter from competing with the former for a specific period after the end of an employment relationship. Noncompete agreements are difficult to challenge under section 1 because, unlike no-poaching agreements, they are concluded between employers and employees rather than between firms. When noncompete agreements are established within a labor market, such as that of the tech industry, they can generate significant anticompetitive outcomes. Posner argues that noncompete agreements are disputable under section 1, noting that they can still have positive market and social effects that should be considered when adjudicating cases.

Chapter 4 turns to section 2 of the Sherman Act, applying it to labor monopsony. Section 2 restricts monopolies, but so far it has not been used successfully in litigating monopsony claims. Posner attributes this failure to litigators’ inability to define labor markets and prove how defendants are engaging in anticompetitive behaviors. He proposes that section 2 be reformed to define labor markets for courts and to provide examples of anticompetitive actions that plaintiffs can use as bases for their claims. In chapter 5, Posner turns his attention to section 7 of the Clayton Act, which puts restrictions on mergers. Section 7 and current merger guidelines do not mention the consequences of mergers on labor markets. Posner states that the merger reviews of the Federal Trade Commission and the U.S. Department of Justice consider the potential positive and negative effects of mergers on consumers, but he argues that these regulatory reviews should also consider the mergers’ effects on workers.

In chapter 7, Posner reiterates that antitrust laws can limit monopsony and market concentrations, but he notes that these laws do not address the issues caused by search frictions or job differentiation. In his view, checking monopsony power will require further actions under labor and employment laws, which are detailed in chapter 8. Examples of reforms mentioned in the book include minimum-wage increases, employee benefit mandates, job standardization, and support for unions. Chapter 9 focuses on reforms related to worker classification and protections for independent contractors. Because independent contractors receive fewer legal protections than other employees (since, technically, contractors work outside the firm), Posner suggests that (1) worker classification should be based on market conditions and (2) antitrust laws should be applied to contractors by considering labor market competitiveness.

Overall, Posner argues that antitrust laws must be reformed to address monopsony power and low competition in labor markets. Furthermore, he suggests that reformed antitrust laws would be insufficient to adequately increase competition in labor markets, which would necessitate additional reforms to labor and employment laws. Efforts to focus antitrust enforcement on labor markets are gaining support among policymakers, with a recent (July 9, 2021) executive order pushing for increased enforcement and ordering a report on the negative effects of low labor market competition. Although its impact on antitrust reform is still uncertain, How Antitrust Failed Workers is a remarkable introduction to the intersection of antitrust law and labor markets.

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About the Reviewer

Daniel Cordier

Daniel Cordier is an economist in the Office of Employment and Unemployment Statistics, U.S. Bureau of Labor Statistics.

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