Employer Market Power in High- and Low-Earning Jobs
Early Career Research Grant
From 1970 to 2014 the labor share of US GDP fell from 66 to 60 percent (University of Groningen and UC Davis 2018) and other countries have seen similar declines (Karabarbounis and Neiman 2013). Several competing explanations have attracted researcher interest. One strand of work emphasizes neoclassical factors, including trade and technological change (Autor et al. 2017a; Autor et al. 2017b; Grossman et al. 2017). A second emphasizes institutional factors, including declining unionization (Blanchard and Giavazzi 2003) and employer market power (US CEA 2016; Krueger and Posner 2018). Because employer market power typically arises endogenously, it is difficult to separate from other determinants of labor earnings. Moreover in the United States, explicit collusion to depress labor compensation is illegal under the Sherman Act, and exercising market power is illegal under the Clayton Act (US Department of Justice 2010; Marinescu and Hovenkamp 2018). This gives firms engaged in such behavior powerful incentives to hide it from both government officials and researchers. Two recent natural experiments provide rare opportunities to identify causal effects of employer market power: 1) the unraveling of the 2005-2009 no-poach agreements among Silicon Valley technology firms; and 2) the 2018-2019 abandonment of franchise noncompete clauses by chains in the face of legal pressure from the Attorney General of Washington.