Competition enforcement could help labour markets function better

By Cristina Volpin, Competition expert at the OECD Competition Division, Directorate for Financial Entreprise Affairs, OECD. This post was written in preparation of a discussion on Competition in labour markets which will take place during the 2020 OECD Competition Open Day second panel.

While there has been very limited enforcement of competition law in labour markets so far, competition law can play a role in addressing some of the issues deriving from increased concentration of market power in the hands of employers.

Unilateral changes of the working conditions offered to workers by some online platforms have re-ignited a public debate on whether cheaper services are offered to consumers thanks to cost-reducing technologies or thanks to the adoption of business models that are claimed to be also based on the exploitation of workers. In particular, it has been observed that the holding of large market shares in the hands of few employers could be linked to decreases in the level of wages paid to workers.

These observations also beg the question of whether competition enforcement has neglected these markets and of whether competition authorities should be more active and systematic in their scrutiny of the demand side of labour markets (i.e. employers).

Indeed, potential competition issues arising out of the behaviour of employers have recently become the focus of attention of some researchers in the US. These academics suggest competition law enforcement as one of the possible tools that could address employer monopsony power.

Employer’s monopsony power

Employer’s market power is commonly called monopsony or oligopsony when one or few employers use their influence in the market to pay wages or impose working conditions on workers that are below what they would be under competitive levels.

This ability to affect negatively wages and working conditions may derive from a number of reasons.

First, a US study links an increase in concentration on the employer side with a reduction in wages of 17%, showing that there may be a strong correlation between employer concentration and downward pressure on wages.[1] Other studies put forward that present-day concentration may be more detrimental than in the past, due to the limited sway of trade unions.[2]

Second, a low level of responsiveness of workers to a decrease in compensation or to the worsening of working conditions in certain markets could also play a part. This low labour supply elasticity may depend on a number of factors, such as lack of information regarding working conditions and opportunities in the marketplace or the difficulty in switching jobs due to workers’ preferences regarding, for instance, working hours, work environment, and length of commuting.

In product markets, a good does not “choose” to be bought. In labour markets, where the “product” is the work of the individual, for a “transaction” to occur both the buyer of labour (employer) and  the seller of labour (worker) must choose the other. So, the matching between workers and employers is much more complex than a traditional transaction between a producer and a consumer.

The use of non-compete agreements providing that workers do not work for their employer’s competitors after termination (usually for a limited period and in a specific geographic area) could also contribute to reducing the mobility of workers and possibly enable employers to exploit their monopsony power. Another factor could be the imposition of excessively burdensome or expensive licensing requirements, often impeding an efficient access of workers to certain labour markets.

The role of competition enforcement

While competition enforcement cannot tackle all of these issues, it could address the anticompetitive creation or exploitation of monopsony power by employers in some forms. For instance, an agreement between employers to fix wages or to refrain from hiring a competitor’s employees.

A few years ago, the United States Department of Justice Antitrust Division filed a complaint (US v. Adobe Systems Inc.), subsequently settled, alleging that some high-tech companies, including Adobe, Apple, Google, Intel, Intuit and Pixar entered into agreements not to solicit each other’s employees or otherwise to impede the recruitment of competitor’s employees. The Department of Justice noted that “[I]n a well-functioning labor market, employers compete to attract the most valuable talent for their needs. Defendant’s concerted behaviour both reduced their ability to compete for employees and disrupted the normal price-setting mechanisms that apply in the labor setting.” It also added that these agreements: “are facially anticompetitive because they eliminated a significant form of competition to attract high tech employees and, overall, substantially diminished competition to the detriment of the affected employees who were likely deprived of competitively important information and access to better job opportunities.”[3]

Another example is when a company decides to acquire another that is competing for the demand of labour, in order to increase its market power on the demand side of the labour market and, as a result, distorts competition at the level of the purchase of labour.

However, the enforcement of competition law in labour markets may present considerable challenges. For instance, the analytical tools in the hands of competition authorities are often better suited to the assessment of downstream product markets rather than input markets. How to define a labour market and how to evaluate anticompetitive effects under the consumer welfare standard, which is applied by competition authorities when determining whether to intervene, are complex questions that require further deep reflection.

These and other issues will be explored on 26 February 2020 at the second OECD Competition Open Day, an open-to-all event to present the recent work of the OECD Competition Committee on cutting-edge topics. In continuation with the discussion started at a roundtable on the same topic held in June 2019, based on a background paper by the OECD Secretariat, the event will include a special session on Competition in Labour Markets. The session will explore the challenges associated with enforcing competition law in labour markets and possible solutions to overcome them.

[1] Azar, J., I. Marinescu, and M. I. Steinbaum (2017), “Labor Market Concentration”, NBER Working Paper No. 24147, .

[2] Abel, W., S. Tenreyro and G. Thwaites (2018), “Monopsony in the UK”, Centre for Economic Policy Research, Discussion Paper Series No. 13265,

[3] United States of America v. Adobe Systems, Inc. et al., Case 1:10-cv-01629,, para. 14.

2020 OECD Competition Open Day Blog Series

Blog 1: Collective bargaining 4.0: using labour law to extend coverage to new forms of work

Blog 2: Competition enforcement could help labour markets function better

Blog 3: Charting the way forward for digital competition policy

Blog 4: Innovation and competition in financial markets

Blog 5: BigTech vs BigBang: Competition in Financial Services

Blog 6: Merger enforcement in dynamic and innovative markets

Blog 7: Protecting consumers’ interests in digital markets – The experience of Australia

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