Working Paper: NBER ID: w31147
Authors: David W. Berger; Thomas Hasenzagl; Kyle F. Herkenhoff; Simon Mongey; Eric A. Posner
Abstract: While the labor market implications of mergers have historically been ignored, recent actions by the Department of Justice (DOJ) place buyer market power (i.e., monopsony) at the forefront of antitrust policy. We develop a theory of multi-plant ownership and monopsony to help guide this new policy focus. We estimate the model using U.S. Census data and demonstrate the model’s ability to replicate empirically documented paths of employment and wages following mergers. We then simulate a representative set of U.S. mergers in order to evaluate merger review thresholds. Our main exercise applies the DOJ and FTC’s product market concentration thresholds to local labor markets. Assuming mergers generate efficiency gains of 5 percent, our simulations suggest that workers are harmed, on average, under the enforcement of the more lenient 2010 merger guidelines and unharmed, on average, under enforcement of the more stringent 1982 merger guidelines. We also provide a framework for further research evaluating alternative concentration thresholds based on assumptions about the efficiency effects of mergers and the resource constraints of regulators. Finally, we provide guidance for using the Gross Downward Wage Pressure method for evaluating the impact of mergers on labor markets.
Keywords: mergers; labor market; monopsony; antitrust policy; wages
JEL Codes: D40; E20; H0; J0; K0; L0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| merger (G34) | decrease in market-level wages (F66) |
| merger (G34) | decrease in employment (J63) |
| merger (G34) | wage markdowns (J31) |
| merger (G34) | average required efficiency gain to prevent worker harm (J28) |
| concentration of markets (L19) | greater adverse effects from mergers (G34) |