Walmart Kills Wages

State and federal lawmakers are focusing more on corporate power in labor markets.

Photo credit: Mike Mozart

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The U.S. Treasury Department released a report last week looking at the power dominant firms have over labor markets, or, in layperson’s terms, the power employers have over how much you are paid and what your work conditions are like. And the findings were grim: “As this report highlights, a careful review of credible academic studies places the decrease in wages at roughly 20 percent relative to the level in a fully competitive market.”

In other words, corporate power is costing workers one-fifth of their wages, and the total is even higher in certain industries, such as manufacturing. Fortunately, there are some things that can be done to mitigate those numbers.

The power employers have to push down compensation is due to several factors, including: Increased consolidation, because there are fewer places for workers to sell their labor, meaning employers can pay less for it; the increasing practice of employers using restrictive contracts and agreements, such as non-competes, no-poach agreements and the like, to prevent workers from moving about freely; and what the Treasury report’s authors call the “fissuring” of the workplace, which is the increased use of contractors, many of whom are misclassified as “independent” when they are functionally full-time employees.

Usually, corporate power is discussed in terms of consumer prices, the traditional monopoly frame of fewer firms producing a good, which enables those that do produce it to corner the market and raise prices. But the power over workers described above is the flip side — monopsony, or buying power — in which fewer purchasers for something, in this case workers’ labor, enables them to pay less for it, essentially dictating the price to producers.

The Treasury report is very theoretical, though, and doesn’t name any names, so it can be hard to get a sense for what the sort of power they’re talking about looks and feels like in the real world.

Another recent study, though, provides some specific insight. Justin Wiltshire of the University of California, Davis, released a paper a few months back looking at the power Walmart wields over local economies, and specifically what the entrance of a Walmart Supercenter into a community does to the jobs available and wages paid there. He did this by comparing local economies where a Supercenter opened to ones where a Supercenter was planned, but never actually opened due to local pushback. (Supercenters are the larger version of Walmart stores that includes groceries, as well as the usual big box store goods.)

Allow me to to quote a bit from the conclusion:

I find Supercenter entry caused overall county employment to fall 2.9% and county earnings to fall 5.2% five years after entry. Retail’s share of local employment increased, while labor force participation fell. I also find that the 1996/97 federal minimum wage increases—which were plausibly exogenous to local conditions—resulted in higher aggregate and retail employment in counties which had a Supercenter. […]

My results are not consistent with local labor markets remaining competitive after Supercenter entry. Rather, they demonstrate that Supercenters gradually acquired and exercised monopsony power where they operated, depressing local employment and earnings for workers in the wider local economy.

Pretty much says it all, no? A Walmart Supercenter shows up, jobs fall by nearly 3 percent, earnings fall by more than 5 percent, and the only thing that produces increased earnings is the brunt force of a minimum wage hike.

For a long time, the progressive critique of Walmart has been that it harms small businesses, pushing local retailers out because its scale allows it to push around suppliers and demand lower prices, which allow for commensurate lower prices in its stores, which shoppers can’t help but be attracted by. Walmart also uses its power and the promise of job creation to win tons of subsidies from local governments, further lowering its cost of business.

But its power over workers is an important piece of context, too. Walmart has certainly been criticized for its low pay, with a focus on how many of its workers qualify for public assistance programs such as Medicaid and food stamps. However, that doesn’t do justice to the broader effects outlined in the study above: Walmart drives down job numbers and quality across the local economy, and increases concentration, which creates a feedback loop that keeps making everything worse by limiting future work options for local residents, in the aggregate.

In fact, one of the most alarming stats in the study is that when Walmart enters a market, labor force participation — the percentage of the working-age population that holds a job — falls, meaning its grip on the labor market forecloses work possibilities for some folks entirely.

So what’s to be done about this? There’s been a push at both the federal and state level across the country to ban non-competes and other restrictive contracts that prevent workers from selling their labor on an open market. And that will certainly help.

But a more foundational change would look like the 21st Century Antitrust Act in New York, which explicitly puts dominance over labor markets into law as an antitrust violation. In addition to outright banning non-compete and no-poach agreements, it states that any employer holding 30 percent of a labor market is dominant, and can face antitrust scrutiny for driving down wages or lowering labor standards or working conditions. A similar bill was recently introduced in the Minnesota legislature, alongside a bill that would strictly define labor monopsony power in state law.

Under current antitrust law, though monopsony power is technically illegal, it’s essentially never prosecuted. When my colleagues went looking for monopsony power cases to include in this report, they found nothing worthwhile to highlight.

Legislative efforts like those described above would put enforcers on much firmer ground, explicitly putting workers at the heart of antitrust law, and also hopefully serve as a deterrent to dominant employers who are contemplating using their power to harm workers.

30 percent concentration may sound low, but employers can exercise power at pretty low levels of concentration in a labor market, for the simple reason that switching jobs is a giant pain. For many people, up and leaving for a different labor market isn’t a possibility for myriad reasons, including family responsibilities, and switching to a new industry requires training or schooling that may be unrealistic for time or cost reasons.

That’s why labor markets with higher levels of concentration see more wage cuts and labor law violations: Workers in areas of high employer concentration simply have nowhere else to go to find better working conditions in their area, can’t up and move to another area entirely, and so simply have to swallow whatever their employer does to them.

Passing the 21st Century Antitrust Act or something like it into law would provide workers with significant new protections against labor abuses, and proactive powers to help push back against corporations in their communities, giving them something to work with when Walmart, Amazon, or whoever else comes to kill their wages. It’s not the only reason that bill should pass, but it’s a pretty good one.

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SHAMELESS SELF-PROMOTION: I talked to the Pennsylvania Capital-Star for a story that, well, is a doozy.

Stephen Caruso @StephenJ_Caruso

ICYMI: A "green" crypto firm that counts Gwyneth Paltrow as an investor, in partnership with a Pennsylvania power generator, has received a tax break under a program meant to encourage data centers.

penncapital-star.comPa. passed a tax break for data centers. Now crypto-miners are taking advantage - Pennsylvania Capital-StarThe cost of the program is expected to grow from $5 million in 2021 to almost $90 million by 2027.

You can read the whole thing here.

I was also supposed to testify on the Minnesota antitrust reform bill mentioned above, but the relevant committee ran out of time and pushed the bill to another day. It happens! But you can still read my submitted testimony here.

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— Pat Garofalo