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Boosting Wages When U.S. Labor Markets Are Not Competitive

 |  January 29, 2021

By: Ioana Marinescu (Washington Center for Equitable Growth)

In many local labor markets across the United States, only a handful of employers compete for workers’ services. In these markets, employers can take advantage of their market power to underpay workers. Stronger antitrust enforcement can increase competition across all U.S. labor markets, thereby raising wages.

When labor markets are not competitive, two other well-known policy tools can also play a new role—unions and minimum wages. Increasing workers’ bargaining power by strengthening unions can counteract the effects of employers’ market power and increase wages. Similarly, a moderate increase in the federal minimum wage would lift workers’ pay without decreasing employment opportunities or existing jobs. An increase in the minimum wage can even create jobs in those parts of the country where there is little competition among employers.

In this essay, I will detail why so many workers are underpaid due to lack of competition for their labor among employers and how such labor market “monopsony” (the term for a monopoly in the labor market) suppresses wages. I will conclude with specific antitrust and labor market policy solutions to lift workers’ wages and incomes to create a more equitable U.S. labor market that contributes to stronger economic growth…