“Ofwork”? A competition regulator to protect workers
Why not use competition regulation to protect workers from abusive and exploitative firms?
Sometimes workers don’t have much choice about where they earn their living.
Think of towns where the major employer is a particular factory or warehouse business – perhaps even the main (the only?) pub or restaurant in a village. When workers don’t have options, this gives the employer a lot of power to reduces wages, working hours, conditions and even employment.
There is no upside to this for workers or even for consumers. What firms are doing is pushing wages down and employing fewer workers, and thereby producing less than they would in a functioning and fair market and most likely at a higher price for consumers.
This is inefficient: too few people are employed and too little stuff is produced compared to a situation where firms are competing for workers. But also, at a moral level, it’s hard to justify: it transfers money from workers’ pockets to that of their employer, without any of the risk taking, organisational efforts or capital contributions that typically mark an employer’s contribution to the big game of business.
The idea is called “monopsony” in the jargon – which is like a mirror image of the better-known “monopoly”.
In a monopoly, you have one seller in a market who raises prices beyond the competitive level and reduces the quantity sold. By contrast, a monopsony is a market where there is only one buyer. Workers are sellers of their labour, and the monopsonist buyer in a labour market is the firm.
Economic theory shows that in these markets, the “price” (in this case wages) and “quantity” (in this case employment) fall. It’s a strong argument for the minimum wage, trade unions and worker protections. It’s not just theory. Several studies have found that increasing the minimum wage also increases the number of workers employed in certain markets and firms. Conversely, there is also evidence that more concentrated labour markets (e.g. those with fewer employers) have lower wages.
We in the UK already have a mandatory “living wage” and other protections. But the living wage is not actually a living wage, that’s just the name given to a souped up minimum wage. The minimum wage was never designed or meant to be liveable, it was just the maximum that the government thought could be implemented without increasing unemployment (too high a wage will eventually lead to unemployment). The current living wage may still be lower than it would be if firms didn’t have power over their workers. It also does nothing to prevent a firm from treating the workers awfully in the UK, with zero-hour, zero-notice, exclusivity-demanding contracts, and far worse. There are horror stories of a woman giving birth in the work toilet to avoid missing a shift at Sports Direct, workers having nine seconds to process a package at Amazon and urinating in bottles, Wilko forcing workers to work 16 hour shifts over the weekend and the list goes on.
Given the reductions in union power over recent decades and firms giving increasingly insecure work with increasingly poor progression options, it seems clear that existing regulations, protections and other mechanisms to protect workers are not strong enough. And workers’ outside options aren’t exactly great either, with the welfare state becoming ever more punitive, and the UN stating in 2016 that the UK was in breach of its human rights obligations. And its not improved since, the temporary COVID-specific emergency responses aside.
So why not use competition regulation to protect workers? Think of it in this way: if a firm has monopoly power over consumers, then the regulator (the CMA) can step in and break the firm up or force them to reduce prices. It also has the power to block mergers to protect consumers. There are other regulators that act similarly to protect the interests of consumers of, among others, water, communications and energy – imaginatively titled Ofwat, Ofcom and Ofgem. So, why not a regulator to protect workers or ask the existing regulator to do more in this area, with more powers and staff? Why not an “Ofwork” to protect us in our roles as workers, just as Ofgem seeks to protect us as energy consumers?
The first objection might be that it seems odd to be talking about further regulation for business in a time when many businesses are struggling. But all is not what it seems. Some very large businesses, such as supermarket chains, may see their revenues and profits rising with increased amounts of people’s spending going their way. Indeed warehouse work and precisely the sectors where workers are most vulnerable, are the ones that may do well out of the crisis. Simon Wren-Lewis, an Oxford economics professor, suggested that the increased demand in certain businesses could be so high as to cause price rises. This regulator would only go after those firms that are exploiting their workers. If a firm needs to do this to survive, then perhaps its model is flawed.
The second is the argument that labour markets are competitive and workers tend to have outside options. The assumption that labour markets are competitive is clearly flawed, why would they be in all instances? Not only that, but there has been alot of industry consolidation and mergers, which raises market power.
Another is that practically it’s too difficult. But why? A regulator could look at complaints and even analyse where there may be such cases. They could use common techniques deployed by the CMA to isolate particular labour markets, establish the likelihood of monopsony, the profit margins of the firm, the options workers have and who they move between and then investigate worker pay and conditions. For instance, it can establish that a particular merger would reduce worker options by looking online (at e.g. LinkedIn) to see whether workers move alot between those firms, and block the merger. Alternatively, it could establish that particular firm has “dominance” in a particular geographic labour market for a particular type of worker (e.g. one technique would be comparing the firm in question with the competitive wage and conditions in other geographies with similar industries and characteristics, but with more than one firm).
Perhaps the idea might seem far-fetched. But it isn’t as out there as it seems. The Economist has suggested that it may be good idea, as has a powerful academic paper. It may seem very old-fashioned and even anti-market to talk of firms exploiting workers. But the argument here is that in a functioning free market with competition for workers, those employees are much more likely to be de facto protected from exploitation. When competition isn’t working, and workers are stuck in needlessly terrible jobs, there’s a pretty solid case for intervention. We already do it for firms in their role of suppliers of goods and services; why not also cover their role as employers of labour?
Daniel Coleman
Daniel is a competition and regulatory economist with experience in both central government and in economic regulation.
