The last few weeks of this blog have focused on a common boogeyman — technology. I have written that new technologies have benefited mainly higher-income workers, while replacing middle-income ones. But another force has been at work in driving stagnant and falling incomes for middle-class workers. And, in some ways, this force is even more troubling than technology.
So, what is this mysterious force? Does it reside in a “galaxy far far away,” within the persona of some guy named “Luke?” Sadly for the popularity of this blog, no. This force lives right here in the good old U.S. of A., and has more to do with the rising bargaining power of employers then the upcoming film, “The Rise of Skywalker.”
Over the last several decades, workers have seen their bargaining power slowly erode. Perhaps the easiest way to see this fact is to look at union enrollment. After all, unions allow individual workers to form into a collective unit, giving them leverage against their employers in the form of strikes. In 1983, about a quarter of workers participated in a union. By 2015, the number was down to 11 percent.
Figure 1. Share of Workers in a Union, 1983 and 2015
Other things have changed too, and not for the better. The minimum wage — which serves as a floor below which even the most powerful employer cannot pay — has declined by 20 percent since 1979 once accounting for inflation. And, as late economist Alan Krueger pointed out, middle- and low-income workers are often subjected to non-compete clauses and no poaching agreements. Non-compete clauses prevent workers from leaving a job to work for a similar employer. No poaching agreements prevent one franchise from hiring another franchisees’ employees. Both these agreements prevent workers from using the one piece of leverage they have — leaving their job for a better one.
And these changes matter, because while employees are losing bargaining power, employers are gaining it. As the figure below shows, over the last four decades, U.S. companies have been getting bigger and also more concentrated. Large employers and high concentration mean that, in any one place, fewer employers exist to work for. And, if fewer employers exist to work for, it’s a heck of a lot harder to ask for a raise. After all, flipping your boss the bird when they say “no” isn’t going to end well if someone else isn’t there to hire you.
Figure 2. Share of Employees Working for Very Large and Smaller Employers, 1980 and 2014
Indeed, the same research that found employers are becoming more concentrated found that workers get paid less in areas when concentration is high. The situation is aggravated by the decline in union coverage. The authors found that the negative effect of having just a few employers was reduced by the presence of unions. That finding shouldn’t be surprising. When workers are able to bind together, the employer doesn’t have many options for replacements. They have to play ball. The problem is, workers bargaining power seems to be long gone.
Earlier in this post, I said that the forces at work reducing workers bargaining power are more troubling than technology. The reason I think this is simple. As a society, we have a lot more control over the relative bargaining power of workers and employers than we do over the march of technology. We could increase the minimum wage, do a more active job of enforcing anti-trust and thus keeping employers smaller, and try to ensure that employers do not scare their workers away from unionization. We could make sure that non-compete clauses and non-poaching agreements are used only sparingly. Our society has the power to increase the bargaining power of workers — we just haven’t.