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The Evolving Antitrust Treatment of Labor-Market Restraints: From Theory to Practice

 |  March 3, 2019

Posted by Social Science Research Network

The Evolving Antitrust Treatment of Labor-Market Restraints: From Theory to Practice

By Randy Stutz (American Antitrust Institute)

With mounting macroeconomic evidence of increased concentration and higher markups, and large firms occupying several important, “winner-takes-most” markets, the threats posed by powerful buyers in the economy have become more pronounced. In particular, experts and enforcers have been paying closer attention to the effects of market power and excessive bargaining leverage on the buyer side of the labor market, which implicates competition among employers to hire and retain workers.

Although buyer power in labor markets has received relatively little antitrust attention historically, the status quo has shifted. Over the last several years, in an initiative begun by the Obama Administration and continued during the Trump Administration, the Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC) have moved to criminalize naked no-poaching and no-hiring agreements among competing employers. At the same time, state enforcers and the private plaintiffs’ antitrust bar have focused resources and enforcement efforts on collusive buyer restraints harming workers, including employees or individual sellers in the agricultural, nursing, high-tech, fast-food, and other sectors. And in merger cases, the government has advanced theories of harm predicated on depressed input prices paid to small sellers of products and services, although not yet on depressed wages. In addition to these important developments, scholars and policy experts have been exploring the nature and extent of labor-market power, as well as possible solutions.

This white paper explores the past, present, and future antitrust treatment of mergers and conduct that have anticompetitive effects in labor markets. After considering possible explanations for past failures to adequately address buyer power in labor markets, the paper catalogues and summarizes recent scholarly literature on the intersection of antitrust and labor policy. The paper concludes by analyzing emerging themes and questions from the recent literature and making recommendations to policymakers and enforcers to facilitate the translation of new insights into effective antitrust enforcement.

Some of the major takeaways from the analysis include the following:

Before real progress can be made in policing mergers on the basis of anticompetitive labor-market effects, practitioners of antitrust merger law – including antitrust lawyers and economists – must begin to identify and resolve the practical challenges associated with litigating and remedying actual merger fact patterns.

If enforcers are not yet able to adequately measure and predict employee substitution in labor markets, enforcers may wish to begin by focusing on employer mergers among labor-market rivals which have previously been parties to a no-poaching agreement, or where there is other direct evidence that a transaction threatens to create or enhance buyer labor-market power.

Although the Clayton Act declares that “the labor of a human being is not a commodity or article of commerce,” this language is designed to protect worker restraints, not employer restraints. Enforcers should not be concerned that the labor exemption or the “affecting commerce” requirement prevent merger enforcement on the basis of anticompetitive labor-market effects, notwithstanding an absence of, or inability to prove, downstream product-market harms.

The Antitrust Division should continue to aggressively pursue criminal prosecutions to deter naked no-poaching and wage-fixing agreements, and the plaintiffs’ antitrust bar and state attorneys’ general should continue to seek deterrence and compensation for victims through investigations and civil suits, including treble damages class actions.

Given the practical difficulties of challenging vertical and putatively ancillary no-poaching and employee non-compete agreements, policy advocates should support state or federal legislative reform as a matter of sound competition policy, particularly when such agreements are imposed on low-skill, low-wage workers in concentrated, high-turnover industries.

The FTC and DOJ should hire in-house labor economists, and Congress should increase the resources available to the agencies accordingly.

The agencies should assimilate the new labor-antitrust literature, conduct their own policy studies on the connection between labor and product market concentration and wages, and update the Horizontal Merger Guidelines once they are institutionally prepared to police mergers on the basis of threatened anticompetitive labor-market effects.

Effective policing of mergers and conduct on the basis of anticompetitive labor-market effects does not require legislative reform or eliminating the consumer welfare standard.

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