Are big employers holding down wages?

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The power of a few big employers may be the key to why wages aren't rising, said Neil Irwin at The New York Times. Unemployment is at a 17-year low and corporate profits have skyrocketed, but American workers just aren't getting raises. Adjusted for inflation, average pay increases hover at just about zero. Economists have been arguing about the reasons for this "wage puzzle." At the Federal Reserve's Jackson Hole, Wyoming, conference last week, a crucial annual event for the world's top economic policymakers, Princeton economist Alan Krueger presented an answer that's gaining traction: Worker bargaining power is low because of the growing clout of a small number of big firms in each industry. Economists call the outsize influence of a few employers "monopsony power," and Krueger estimates it shaves 1 to 1.5 percent a year off wage growth. That might not sound like much, but over 20 years an extra 1.5 percent raise a year would increase your pay by a third. When workers have fewer potential employers to choose from, they have "less ability to demand higher pay." Meanwhile, as the number of employers shrinks, it's easier for them to "collude to restrict pay," whether through explicit backroom deals or more subtle signaling.

The pressure on wages is only one example of the growing power of a few large corporations, said David Dayen at New Republic​. Central bankers, for instance, are losing the ability to manage inflation, as more and more retailers look at Amazon's prices to set their own. "An algorithm somewhere in Seattle" may now have a more direct influence on prices than the economists at the Federal Reserve in Washington, D.C. Large companies with armies of lawyers have a leg up on intellectual property too, buying up and locking down patents to keep out competition. The concentration of corporate power may have other, more subtly dangerous effects for workers, said Paul Krugman at The New York Times. If you're in an industry that's dominated by fewer and fewer players — for instance, a pharmacist working at Walgreens — you have limited options if you're mistreated. "Quit because you have an abusive boss or have problems with company policy, and you may have real trouble getting a new job."

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There is some good news on the pay front, said Matthew Yglesias at Vox. For the bottom 20 percent of workers, "wages have actually been growing pretty strongly." But middle-class salaries are flat because many companies are underutilizing their workers. They haven't invested in new equipment or new ideas. Most of all, businesses haven't poured resources into training their workers; they've "gotten out of the habit of actually investing in people rather than merely seeing them as a cost." If the economy stays on track, hopefully they'll start making that investment, productivity will go up — and so will wages. If not, then "stronger medicine" is called for. That means changes to corporate rules that would make big corporations accountable to workers, not just "piggy banks" for shareholders. And stronger antitrust enforcement to tackle the growing power of giant corporations head-on. So far, there hasn't been much political appetite for the latter. But if wages don't start growing faster, there will be.