Employer monopsony power, defined as the unilateral ability of employers to pay employees below the competitive level, harms workers and reduces output and employment, resulting in a loss of productive efficiency. Competition authorities worldwide have historically assumed that labor markets are relatively competitive, and, to date, there have been few enforcement actions against monopsony power in the labor market. Spurred by mounting empirical evidence, US competition authorities have begun to challenge more systematically the assumption of competitive labor markets. Meanwhile, with few exceptions, European competition authorities have not been as quick to act. This raises the question whether European labor markets may be less monopsonistic than the US labor market.
We provide evidence to question whether European labor markets are more competitive than those on the other side of the Atlantic. We conduct the largest cross-country comparison of labor market concentration to date. Labor market concentration—the density of employers in a labor market and a proxy for monopsony power—features prominently in the portfolio of competition authorities and it is easy to measure with available data. To measure concentration, we use harmonized data from a quasi-universe of online job vacancies from the US, Canada, and 12 European countries under a single, standardized, methodology.
On average, 18% of workers in the 14 countries considered are in labor markets that are at least moderately concentrated—according to the definition frequently used by competition authorities in the context of product markets—and 11% are found in highly concentrated labor markets.
The share of workers in concentrated labor markets in the US and Canada is approximately the same as the average of the European countries for which we have data. Similarly, through a review of the literature, we document that the effects of labor market concentration on wages are broadly similar across the two sides of the Atlantic, despite the large differences that exist in labor market institutions and regulation. All of this evidence suggests that there is no apparent economic or legal justification for a lower level of enforcement activity about employer monopsony power in Europe than in the US.
We therefore argue that there is wide purview for the European Commission and other European competition authorities to scrutinize monopsony power in the labor market. While the US has moved vigorously to tackle the causes of employer power in the labor market, there have been a few cases brought by European national competition authorities in recent years, and the European Commission (EC) has not thus far had a case relating to employers’ collusion. Yet, the EU has begun to revise competition law to integrate some sustainability considerations in competition assessments. This may present a timely opportunity to allow the integration of monopsony’s effects on workers’ wages and working conditions in the EC’s assessments of competition more generally.
© Satoshi Araki, Andrea Bassanini, Andrew Green, Luca Marcolin, and Cristina Volpin
Satoshi Araki is a Junior Economist, Jobs and Income Division, Organization for Economic Co-operation and Development OECD).
Andrea Bassanini is a Senior Economist, Jobs and Income Division, OECD, and an IZA Fellow.
Andrew Green is an Economist, Skills and Employability Division, OECD.
Luca Marcolin is an Economist, Skills and Employability Division, OECD, and a Research Fellow at KU Leuven.
Cristina Volpin is a Competition Expert, Competition Division, OECD.
This commentary expresses the personal views of the authors. It does not necessarily reflect the official views of the Organisation for Economic Co-operation and Development or its Member Countries.
Please note:
We recognize that IZA World of Labor articles may prompt discussion and possibly controversy. Opinion pieces, such as the one above, capture ideas and debates concisely, and anchor them with real-world examples. Opinions stated here do not necessarily reflect those of the IZA.