Wednesday, October 16, 2019

Enhancing Anti-Competition Protection Against Labour Market Monopsony

PaySlipBanSA believes South Africa has a growing labour market competition problem requiring similar corrective actions as the United States where recent labour market protections addressing wage inequality have been legislated.

THE FOLLOWING ARE EXTRACTS FROM THE 2018 ROOSEVELT INSTITUTE WORKING PAPER: A Proposal to Enhance Antitrust Protection Against Labor Market Monopsony

The United States, has a labor monopsony problem. A labor monopsony exists when lack of competition in the labor market enables employers to suppress the wages of their workers. Labor monopsony harms the economy: the low wages force workers out of the workforce, suppressing economic growth. Labor monopsony harms workers, whose wages and employment opportunities are reduced. Because monopsonists can artificially restrict labor mobility, monopsony can block entry into markets, and harm companies who need to hire workers. The labor monopsony problem urgently calls for a solution.

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Is the demand for rival firm pay slips and cost to company information during recruitment, competitive or ant-competitive practice?

Pay Slip Ban SA believes both the Constitution and Competition Act prevents employers from colluding on wages and obstructing job seekers from pursuing better or alternative economic opportunity.

The economics of labour market monopsony

When employers set wages and working conditions, they seek to minimize their labor costs while attracting the workers they need in the production process.

There are three major sources of monopsony: concentration, search frictions, and job differentiation.

Concentration means that only one or a few employers hire a particular kind of worker in an area where workers reside and commute.

When few employers exist, a worker who is underpaid by her existing employer lacks the ability to quit and work for an alternative employer for a higher wage. This allows the incumbent employer to suppress the wage.

Employer concentration also facilitates overt or tacit collusion, for example, where one firm acts as a “wage leader” by periodically announcing wage increases that other firms match.

Search frictions refer to the difficulty faced by workers with finding new jobs if they are unsatisfied with their existing employer or are fired or laid off.

Search frictions exist because workers may be unaware of alternative employment opportunities in the area or elsewhere; or, while they may know that other employers are hiring, they may have trouble comparing jobs because of various intangibles like the work environment.

Even in the presence of good information and comparable jobs, there is a coordination problem that leads to search frictions: workers do not know which firms other workers are applying to, so workers will end up over-applying to some jobs and under-applying to others.

Workers who just happen by chance to have applied to popular jobs have a low probability of getting hired, which increases the time it takes to find a job. If finding a job is hard and risky, then workers will settle for a low wage offer rather than keep searching.

Job differentiation refers to the way that different employers can offer a worker different packages of amenities —including, for example, shift flexibility, childcare, vacation and sick time, and the overall atmosphere at work, such as whether it is intense, relaxed, noisy, collegial, or competitive.

Workers sort themselves across employers according to the amenities that are offered, but as a result they may become vulnerable to wage suppression because they cannot credibly threaten to leave one job for another where the amenities are quite different.

We hope the Roosevelt Institute will respond to our question!

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