The concentration of many industries into fewer and fewerdominant players, combined with the decline of labor unions, mayhave tilted negotiating ability away from workers and towardcorporations. (Photo: Shutterstock)

Now that unemployment has touched its lowest level since1969, economists are puzzling even more over why wages haven't beenrising faster. After all, with fewerprospective workers seeking jobs, employers should be having to payup to attract new employees and keep the ones theyhave. One theory about what's going carries the name monopsony.

1. What's a monopsony?

It's when there are many providers of a product (includinglabor) but only one dominant buyer, who holds all the cards and candrive prices down. In the labor market context, it means workershave lost the bargaining power they need to push for higher pay.Monopsony power was a feature of the company towns that helpeddefine the Industrial Revolution, since everybody served oneemployer. More recently, the concentration of many industries intofewer and fewer dominant players, combined with the decline oflabor unions, may have tilted negotiating ability away from workersand toward corporations.

2. Why is it called that?

It shares some of the same Greek roots as the more familiar“monopoly,” which means a single dominant seller of a good orcommodity.

3. Why is monopsony an issue now?

Wages, mostly. They've been growing relatively slowly since theeconomy rebounded from the 2007-2009 downturn. That's surprising,because unemployment is now very low, while employer complaintsabout worker shortages are reaching a fever pitch. If there aregenuinely not enough workers to go around, and employees stillcan't negotiate much-higher pay (as available data suggests),competition isn't playing out as it's supposed to. That's whymonopsony is getting a hard look.

4. What's the new thinking on it?

As big-box retail crushed mom-and-pop stores in the 1990s, somecommunities were left with one dominant retail employer, in manycases outlets of a chain like Walmart Inc. But now, some economistsare exploring a broader definition of the term, saying thatemployers have wage-setting power not just because they dominate amarket but because it's tough for workers to change jobs. If somecocktail of imperfect information about available opportunities andoutright barriers to changing jobs (like licensing) are making itharder to find and get new gigs, workers could be settling for lesspay than they'd otherwise be capable of earning.

5. What evidence points to monopsony?

There's anecdotal evidence of employer domination. This includesthe abuse of non-compete agreements which bar workers from taking ajob from a rival company. Originally designed to prevent keyemployees from walking away with proprietary information, even fastfood chains have tried to restrict the movement of low-wage workersin this way. (They agreed to stop the practice.) Lawsuits havealleged that tech giants including Apple, Google, Samsung and LGhave conspired to hold down wages by agreeing not to recruit eachothers' employees.

6. Is any of this illegal?

As with monopolies, the U.S. Federal Trade Commission's Bureauof Competition and the Justice Department's antitrust division canchallenge a monopsony that either office deems to beanti-competitive. Some economists are also urging the FTC also toconsider potential monopsony effects when reviewing proposedmergers and acquisitions.

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