Archives For Labor Law

In a recent post at the (appallingly misnamed) ProMarket blog (the blog of the Stigler Center at the University of Chicago Booth School of Business — George Stigler is rolling in his grave…), Marshall Steinbaum keeps alive the hipster-antitrust assertion that lax antitrust enforcement — this time in the labor market — is to blame for… well, most? all? of what’s wrong with “the labor market and the broader macroeconomic conditions” in the country.

In this entry, Steinbaum takes particular aim at the US enforcement agencies, which he claims do not consider monopsony power in merger review (and other antitrust enforcement actions) because their current consumer welfare framework somehow doesn’t recognize monopsony as a possible harm.

This will probably come as news to the agencies themselves, whose Horizontal Merger Guidelines devote an entire (albeit brief) section (section 12) to monopsony, noting that:

Mergers of competing buyers can enhance market power on the buying side of the market, just as mergers of competing sellers can enhance market power on the selling side of the market. Buyer market power is sometimes called “monopsony power.”

* * *

Market power on the buying side of the market is not a significant concern if suppliers have numerous attractive outlets for their goods or services. However, when that is not the case, the Agencies may conclude that the merger of competing buyers is likely to lessen competition in a manner harmful to sellers.

Steinbaum fails to mention the HMGs, but he does point to a US submission to the OECD to make his point. In that document, the agencies state that

The U.S. Federal Trade Commission (“FTC”) and the Antitrust Division of the Department of Justice (“DOJ”) [] do not consider employment or other non-competition factors in their antitrust analysis. The antitrust agencies have learned that, while such considerations “may be appropriate policy objectives and worthy goals overall… integrating their consideration into a competition analysis… can lead to poor outcomes to the detriment of both businesses and consumers.” Instead, the antitrust agencies focus on ensuring robust competition that benefits consumers and leave other policies such as employment to other parts of government that may be specifically charged with or better placed to consider such objectives.

Steinbaum, of course, cites only the first sentence. And he uses it as a launching-off point to attack the notion that antitrust is an improper tool for labor market regulation. But if he had just read a little bit further in the (very short) document he cites, Steinbaum might have discovered that the US antitrust agencies have, in fact, challenged the exercise of collusive monopsony power in labor markets. As footnote 19 of the OECD submission notes:

Although employment is not a relevant policy goal in antitrust analysis, anticompetitive conduct affecting terms of employment can violate the Sherman Act. See, e.g., DOJ settlement with eBay Inc. that prevents the company from entering into or maintaining agreements with other companies that restrain employee recruiting or hiring; FTC settlement with ski equipment manufacturers settling charges that companies illegally agreed not to compete for one another’s ski endorsers or employees. (Emphasis added).

And, ironically, while asserting that labor market collusion doesn’t matter to the agencies, Steinbaum himself points to “the Justice Department’s 2010 lawsuit against Silicon Valley employers for colluding not to hire one another’s programmers.”

Steinbaum instead opts for a willful misreading of the first sentence of the OECD submission. But what the OECD document refers to, of course, are situations where two firms merge, no market power is created (either in input or output markets), but people are laid off because the merged firm does not need all of, say, the IT and human resources employees previously employed in the pre-merger world.

Does Steinbaum really think this is grounds for challenging the merger on antitrust grounds?

Actually, his post suggests that he does indeed think so, although he doesn’t come right out and say it. What he does say — as he must in order to bring antitrust enforcement to bear on the low- and unskilled labor markets (e.g., burger flippers; retail cashiers; Uber drivers) he purports to care most about — is that:

Employers can have that control [over employees, as opposed to independent contractors] without first establishing themselves as a monopoly—in fact, reclassification [of workers as independent contractors] is increasingly standard operating procedure in many industries, which means that treating it as a violation of Section 2 of the Sherman Act should not require that outright monopolization must first be shown. (Emphasis added).

Honestly, I don’t have any idea what he means. Somehow, because firms hire independent contractors where at one time long ago they might have hired employees… they engage in Sherman Act violations, even if they don’t have market power? Huh?

I get why he needs to try to make this move: As I intimated above, there is probably not a single firm in the world that hires low- or unskilled workers that has anything approaching monopsony power in those labor markets. Even Uber, the example he uses, has nothing like monopsony power, unless perhaps you define the market (completely improperly) as “drivers already working for Uber.” Even then Uber doesn’t have monopsony power: There can be no (or, at best, virtually no) markets in the world where an Uber driver has no other potential employment opportunities but working for Uber.

Moreover, how on earth is hiring independent contractors evidence of anticompetitive behavior? ”Reclassification” is not, in fact, “standard operating procedure.” It is the case that in many industries firms (unilaterally) often decide to contract out the hiring of low- and unskilled workers over whom they do not need to exercise direct oversight to specialized firms, thus not employing those workers directly. That isn’t “reclassification” of existing workers who have no choice but to accept their employer’s terms; it’s a long-term evolution of the economy toward specialization, enabled in part by technology.

And if we’re really concerned about what “employee” and “independent contractor” mean for workers and employment regulation, we should reconsider those outdated categories. Firms are faced with a binary choice: hire workers or independent contractors. Neither really fits many of today’s employment arrangements very well, but that’s the choice firms are given. That they sometimes choose “independent worker” over “employee” is hardly evidence of anticompetitive conduct meriting antitrust enforcement.

The point is: The notion that any of this is evidence of monopsony power, or that the antitrust enforcement agencies don’t care about monopsony power — because, Bork! — is absurd.

Even more absurd is the notion that the antitrust laws should be used to effect Steinbaum’s preferred market regulations — independent of proof of actual anticompetitive effect. I get that it’s hard to convince Congress to pass the precise laws you want all the time. But simply routing around Congress and using the antitrust statutes as a sort of meta-legislation to enact whatever happens to be Marshall Steinbaum’s preferred regulation du jour is ridiculous.

Which is a point the OECD submission made (again, if only Steinbaum had read beyond the first sentence…):

[T]wo difficulties with expanding the scope of antitrust analysis to include employment concerns warrant discussion. First, a full accounting of employment effects would require consideration of short-term effects, such as likely layoffs by the merged firm, but also long-term effects, which could include employment gains elsewhere in the industry or in the economy arising from efficiencies generated by the merger. Measuring these effects would [be extremely difficult.]. Second, unless a clear policy spelling out how the antitrust agency would assess the appropriate weight to give employment effects in relation to the proposed conduct or transaction’s procompetitive and anticompetitive effects could be developed, [such enforcement would be deeply problematic, and essentially arbitrary].

To be sure, the agencies don’t recognize enough that they already face the problem of reconciling multidimensional effects — e.g., short-, medium-, and long-term price effects, innovation effects, product quality effects, etc. But there is no reason to exacerbate the problem by asking them to also consider employment effects. Especially not in Steinbaum’s world in which certain employment effects are problematic even without evidence of market power or even actual anticompetitive harm, just because he says so.

Consider how this might play out:

Suppose that Pepsi, Coca-Cola, Dr. Pepper… and every other soft drink company in the world attempted to merge, creating a monopoly soft drink manufacturer. In what possible employment market would even this merger create a monopsony in which anticompetitive harm could be tied to the merger? In the market for “people who know soft drink secret formulas?” Yet Steinbaum would have the Sherman Act enforced against such a merger not because it might create a product market monopoly, but because the existence of a product market monopoly means the firm must be able to bad things in other markets, as well. For Steinbaum and all the other scolds who see concentration as the source of all evil, the dearth of evidence to support such a claim is no barrier (on which, see, e.g., this recent, content-less NYT article (that, naturally, quotes Steinbaum) on how “big business may be to blame” for the slowing rate of startups).

The point is, monopoly power in a product market does not necessarily have any relationship to monopsony power in the labor market. Simply asserting that it does — and lambasting the enforcement agencies for not just accepting that assertion — is farcical.

The real question, however, is what has happened to the University of Chicago that it continues to provide a platform for such nonsense?

“Houston, we have a problem.” It’s the most famous line from Apollo 13 and perhaps how most Republicans are feeling about their plans to repeal and replace Obamacare.

As repeal and replace has given way to tinker and punt, Congress should take a lesson from one of my favorite scenes from Apollo 13.

“We gotta find a way to make this, fit into the hole for this, using nothing but that.”

Let’s look at a way Congress can get rid of the individual mandate, lower prices, cover pre-existing conditions, and provide universal coverage, using the box of tools that we already have on the table.

Some ground rules

First ground rule: (Near) universal access to health insurance. It’s pretty clear that many, if not most Americans, believe that everyone should have health insurance. Some go so far as to call it a “basic human right.” This may be one of the biggest shifts in U.S. public opinion over time.

Second ground rule: Everything has a price, there’s no free lunch. If you want to add another essential benefit, premiums will go up. If you want community rating, young healthy people are going to subsidize older sicker people. If you want a lower deductible, you’ll pay a higher premium, as shown in the figure below all the plans available on Oregon’s ACA exchange in 2017. It shows that a $1,000 decrease in deductible is associated with almost $500 a year in additional premium payments. There’s no free lunch.

ACA-Oregon-Exchange-2017

Third ground rule: No new programs, no radical departures. Maybe Singapore has a better health insurance system. Maybe Canada’s is better. Switching to either system would be a radical departure from the tools we have to work with. This is America. This is Apollo 13. We gotta find a way to make this, fit into the hole for this, using nothing but that.

Private insurance

Employer and individual mandates: Gone. This would be a substantial change from the ACA, but is written into the Senate health insurance bill. The individual mandate is perhaps the most hated part of the ACA, but it was also the most important part Obamacare. Without the coverage mandate, much of the ACA falls apart, as we are seeing now.

Community rating, mandated benefits (aka “minimum essential benefit”), and pre-existing conditions. Sen. Ted Cruz has a brilliantly simple idea: As long as a health plan offers at least one ACA-compliant plan in a state, the plan would also be allowed to offer non-Obamacare-compliant plans in that state. In other words, every state would have at least one plan that checks all the Obamacare boxes of community rating, minimum essential benefits, and pre-existing conditions. If you like Obamacare, you can keep Obamacare. In addition, there could be hundreds of other plans for which consumers can pick each person’s unique situation of age, health status, and ability/willingness to pay. A single healthy 27-year-old would likely choose a plan that’s very different from a plan chosen by a family of four with 40-something parents and school aged children.

Allow—but don’t require—insurance to be bought and sold across state lines. I don’t know if this a big deal or not. Some folks on the right think this could be a panacea. Some folks on the left think this is terrible and would never work. Let’s find out. Some say insurance companies don’t want to sell policies across state lines. Some will, some won’t. Let’s find out, but it shouldn’t be illegal. No one is worse off by loosening a constraint.

Tax deduction for insurance premiums. Keep insurance premiums as a deductible expense for business: No change from current law. In addition, make insurance premiums deductible on individual taxes. This is a not-so-radical change from current law that allows deductions for medical expenses. If someone has employer-provided insurance, the business would be able deduct the share the company pays and the worker would be able to deduct the employee share of the premium from his or her personal taxes. Sure the deduction will reduce tax revenues, but the increase in private insurance coverage would reduce the costs of Medicaid and charity care.

These straightforward changes would preserve one or more ACA-compliant plan for those who want to pay Obamacare’s “silver prices,” allow for consumer choice across other plans, and result in premiums that more closely aligned with benefits chosen by consumers. Allowing individuals to deduct health insurance premiums is also a crucial step in fostering insurance portability.

Medicaid

Even with the changes in the private market, some consumers will find that they can’t afford or don’t want to pay the market price for private insurance. These people would automatically get moved into Medicaid. Those in poverty (or some X% of the poverty rate) would pay nothing and everyone else would be charged a “premium” based on ability to pay. A single mother in poverty would pay nothing for Medicaid coverage, but Elon Musk (if he chose this option) would pay the full price. A middle class family would pay something in between free and full-price. Yes, this is a pretty wide divergence from the original intent of Medicaid, but it’s a relatively modest change from the ACA’s expansion.

While the individual mandate goes away, anyone who does not buy insurance in the private market or is not covered by Medicare will be “mandated” to have Medicaid coverage. At the same time, it preserves consumer choice. That is, consumers have a choice of buying an ACA compliant plan, one of the hundreds of other private plans offered throughout the states, or enrolling in Medicaid.

Would the Medicaid rolls explode? Who knows?

The Census Bureau reports that 15 percent of adults and 40 percent of children currently are enrolled in Medicaid. Research published in the New England Journal of Medicine finds that 44 percent of people who were enrolled in the Medicaid under Obamacare qualified for Medicaid before the ACA.

With low cost private insurance alternatives to Medicaid, some consumers would likely choose the private plans over Medicaid coverage. Also, if Medicaid premiums increased with incomes, able-bodied and working adults would likely shift out of Medicaid to private coverage as the government plan loses its cost-competitiveness.

The cost sharing of income-based premiums means that Medicaid would become partially self supporting.

Opponents of Medicaid expansion claim that the program provides inferior service: fewer providers, lower quality, worse outcomes. If that’s true, then that’s a feature, not a bug. If consumers have to pay for their government insurance and that coverage is inferior, then consumers have an incentive to exit the Medicaid market and enter the private market. Medicaid becomes the insurer of last resort that it was intended to be.

A win-win

The coverage problem is solved. Every American would have health insurance.

Consumer choice is expanded. By allowing non-ACA-compliant plans, consumers can choose the insurance that fits their unique situation.

The individual mandate penalty is gone. Those who choose not to buy insurance would get placed into Medicaid. Higher income individuals would pay a portion of the Medicaid costs, but this isn’t a penalty for having no insurance, it’s the price of having insurance.

The pre-existing conditions problem is solved. Americans with pre-existing conditions would have a choice of at least two insurance options: At least one ACA-compliant plan in the private market and Medicaid.

This isn’t a perfect solution, it may not even be a good solution, but it’s a solution that’s better than what we’ve got and better than what Congress has come up with so far. And, it works with the box of tools that’s already been dumped on the table.

On July 1, the minimum wage will spike in several cities and states across the country. Portland, Oregon’s minimum wage will rise by $1.50 to $11.25 an hour. Los Angeles will also hike its minimum wage by $1.50 to $12 an hour. Recent research shows that these hikes will make low wage workers poorer.

A study supported and funded in part by the Seattle city government, was released this week, along with an NBER paper evaluating Seattle’s minimum wage increase to $13 an hour. The papers find that the increase to $13 an hour had significant negative impacts on employment and led to lower incomes for minimum wage workers.

The study is the first study of a very high minimum wage for a city. During the study period, Seattle’s minimum wage increased from what had been the nation’s highest state minimum wage to an even higher level. It is also unique in its use of administrative data that has much more detail than is usually available to economics researchers.

Conclusions from the research focusing on Seattle’s increase to $13 an hour are clear: The policy harms those it was designed to help.

  • A loss of more than 5,000 jobs and a 9 percent reduction in hours worked by those who retained their jobs.
  • Low-wage workers lost an average of $125 per month. The minimum wage has always been a terrible way to reduce poverty. In 2015 and 2016, I presented analysis to the Oregon Legislature indicating that incomes would decline with a steep increase in the minimum wage. The Seattle study provides evidence backing up that forecast.
  • Minimum wage supporters point to research from the 1990s that made headlines with its claims that minimum wage increases had no impact on restaurant employment. The authors of the Seattle study were able to replicate the results of these papers by using their own data and imposing the same limitations that the earlier researchers had faced. The Seattle study shows that those earlier papers’ findings were likely driven by their approach and data limitations. This is a big deal, and a novel research approach that gives strength to the Seattle study’s results.

Some inside baseball.

The Seattle Minimum Wage Study was supported and funded in part by the Seattle city government. It’s rare that policy makers go through any effort to measure the effectiveness of their policies, so Seattle should get some points for transparency.

Or not so transparent: The mayor of Seattle commissioned another study, by an advocacy group at Berkeley whose previous work on the minimum wage is uniformly in favor of hiking the minimum wage (they testified before the Oregon Legislature to cheerlead the state’s minimum wage increase). It should come as no surprise that the Berkeley group released its report several days before the city’s “official” study came out.

You might think to yourself, “OK, that’s Seattle. Seattle is different.”

But, maybe Seattle is not that different. In fact, maybe the negative impacts of high minimum wages are universal, as seen in another study that came out this week, this time from Denmark.

In Denmark the minimum wage jumps up by 40 percent when a worker turns 18. The Danish researchers found that this steep increase was associated with employment dropping by one-third, as seen in the chart below from the paper.

3564_KREINER-Fig1

Let’s look at what’s going to happen in Oregon. The state’s employment department estimates that about 301,000 jobs will be affected by the rate increase. With employment of almost 1.8 million, that means one in six workers will be affected by the steep hikes going into effect on July 1. That’s a big piece of the work force. By way of comparison, in the past when the minimum wage would increase by five or ten cents a year, only about six percent of the workforce was affected.

This is going to disproportionately affect youth employment. As noted in my testimony to the legislature, unemployment for Oregonians age 16 to 19 is 8.5 percentage points higher than the national average. This was not always the case. In the early 1990s, Oregon’s youth had roughly the same rate of unemployment as the U.S. as a whole. Then, as Oregon’s minimum wage rose relative to the federal minimum wage, Oregon’s youth unemployment worsened. Just this week, Multnomah County made a desperate plea for businesses to hire more youth as summer interns.

It has been suggested Oregon youth have traded education for work experience—in essence, they have opted to stay in high school or enroll in higher education instead of entering the workforce. The figure below shows, however, that youth unemployment has increased for both those enrolled in school and those who are not enrolled in school. The figure debunks the notion that education and employment are substitutes. In fact, the large number of students seeking work demonstrates many youth want employment while they further their education.

OregonYouthUnemployment

None of these results should be surprising. Minimum wage research is more than a hundred years old. Aside from the “mans bites dog” research from the 1990s, economists were broadly in agreement that higher minimum wages would be associated with reduced employment, especially among youth. The research published this week is groundbreaking in its data and methodology. At the same time, the results are unsurprising to anyone with any understanding of economics or experience running a business.

Today, thirty-nine different companies and policy experts from a wide swath of the political spectrum signed a letter urging lawmakers to create a “portable benefits” platform that will enable sharing economy companies to continue innovating while simultaneously providing desirable social safety net benefits to workers. This is well timed, as there is a growing consensus among lawmakers (such as Senator Warner) that “something must be done” to provide benefits to workers in the so-called “gig economy.”

In total, the thirty-nine signatories to the letter are pushing for changes to existing law based on a set of principles holding that benefits should be:

  1. Independent;
  2. Flexible and pro-rated;
  3. Portable;
  4. Universal; and
  5. Supportive of innovation

In a nutshell, this would effectively mean that there is some form of benefits available to gig economy workers that follows them around and is accessible regardless of who employs them (or, ostensibly, whether they are employed at all).

Looking past the text of the letter, this would likely entail a package of changes to existing law that would allow individual workers to utilize some form of privately created platform for managing the benefits that are normally obtained in a traditional employee-employer relationship. Such benefits would include, for instance, workers’ compensation, unemployment, disability, professional development, and retirement. A chief advantage of a portable benefits platform is that–much as in an underlying justification of the ACA–workers would no longer be tied to particular companies in order to enjoy these traditionally employer-based benefits.

Although platform-based work facilitated by smartphone apps is cutting edge, there is historical precedent for this approach to the provision of benefits. Unions have long relied upon multi-employer plans for providing benefits, and the healthcare industry developed portable health savings accounts as a means to free individuals from employer-bound health insurance plans. And the industry has been seeking fully private solutions to these sorts of problems for some time. For instance, Uber recently partnered with Stride Health to provide health insurance benefits to verified drivers.

There will, of course, be some necessary legislative changes in order to make these portable benefits platforms a reality. First, there probably needs to be a provision in the tax code that allows for workers’ contributions to their own plans to receive the same tax-favored treatment that traditional employer-based benefits receive (or, even better, the political give-away would need to be removed from employer-based benefits). Additionally, companies would need to be able to make optional matching contributions with a similar tax treatment. And lurking in the background of all of this is the specter of a large number of employer obligations. Thus, a necessary quid pro quo to get sharing economy companies to pay into these platforms will be some form of safe harbor shielding them from further obligations.

This is a win for both companies and workers. The truth is that our labor market is very fractured–labor force participation rates are at a low, and those who are working remain chronically underemployed. Coupled with this reality, the technology that enables work is becoming ever more flexible and, as shown by their expressed preferences, individuals are clearly interested in the gig economy as a means of easily obtaining work as needed. A portable benefits platform could provide the sort of support to make flexible work a viable alternative to employee status.

And for many employers–sharing economy and non-sharing economy alike–removing antiquated legal strictures from the employment relationship promises a number of increased efficiencies. Particularly in the context of sharing economy companies, this will include the ability to exert some form of control over platform workers without being sucked into an onerous employer-employee relationship.

For instance, Instacart recently moved a number of its platform workers to part-time employee status. Although the decision was very likely multi-faceted, a big part of it had to be Instacart’s desire to give training and guidance to the shoppers who provided services to the platform’s consumers (for instance, instructing them on the best sequence in which to pick groceries in order to ensure maximum freshness). However, to provide any modest degree of oversight would likely mean that Instacart would move from empowering contractors to directing employees, and thereby run into a thicket of labor laws.

Yet why should this particular employee classification be necessary? Platform-based work is a revolutionary way to defeat the traditional transaction costs that justified large, centrally-organized firms. Companies like Uber and Instacart enable what otherwise would have been fallow resources–spare labor, unused cars, and the like–to be fitted to consumer demand.

Moreover, forcing rigid employee classifications upon sharing economy workers will only reintroduce inefficiency into the worker-company relationship. Instead of allowing workers to sign on just for the amount of work they are willing to do, and allowing consumers just to purchase the amount of work they desire, an employee classification essentially requires companies to purchase labor in blocks of hours. At scale, this necessarily introduces allocation and pricing errors into the system. If a smart safe harbor is included in any legislative push for a portable benefits platform, companies could have much more flexibility in directing platform workers.

I am excited to see this development emerging from the industry and from policy makers, and I look forward to the response of our lawmakers (although, this being election season, I don’t expect too much from that response — at least not yet). There is understably a lot of concern about the welfare of workers in the new economy. But it’s important not to lose the innovative new ways of working, producing, and consuming that the modern digital economy affords by resorting to ill-fitted legal regimes from the past.