Job Market Monopolies

· March 17, 2019

Or to be precise, monosonys: where there is a dominant supplier that gains pricing power through lack of competition. Timothy Taylor has an excellent post looking at the economics and linking (as always) to some solid research on the matter. There are some pecularities in job markets that make employment more vulnerable to big, powerful employers than you would otherwise think. To re-quote, the core point around the difference from product markets is the bi-directional matching:

 Compare buying a car in the product market and searching for a job. Both are important, high-stakes choices that are taken with care. However, there is a crucial difference. In a car sale, only the buyer cares about the identity, nature, and features of the product in question — the car. The seller cares nothing about the buyer or (in most cases) what the buyer plans do with the car. In employment, the employer cares about the identity and characteristics of the employee and the employee cares about the identity and characteristics of the employer. Complexity runs in both directions rather than in one. Employers search for employees who are not just qualified, but also who possess skills and personality that are a good match to the culture and needs of that employer. At the same time, employees are looking for an employer with a workplace and working conditions that are a good match for their needs, preferences, and family situation. Only when these two sets of preferences and requirements “match” will a hire be made.

The paper goes on to point out the difficulties this creates particularly for lower-income individuals and those in two-earner households who need to find at least a geographic match for both people. I wonder if there has been any effect from the gig-work platforms: it seems plausible that a low-paid worker with a car could earn more as a Lyft or Uber driver, which, if true, would hopefully blunt some of that monopsony power. Interestingly, both those companies have actively worked on systems to remove (economic) barriers to entry, namely having a qualifying car, through their managed rental car programs. In some ways their competition for drivers is traditional employment, so it makes sense for them to make the opportunity widely available.