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Dearth of competition has taken toll on worker wages

A new report from the Treasury Department says employer practices and industry mergers are keeping salaries low and limiting opportunities.

WASHINGTON (CN) — Undercutting the pandemic-era belief that staff shortages from the Great Resignation have put employers over a barrel, Treasury officials said Monday that the data are instead painting a shadow of wage depression.

President Joe Biden catalyzed the study on the state of American labor in a July executive order. The resulting 77-page report condenses years of independent research on competition in the labor market and says workers have lost an average of 15% to 25% of the wages they would make in a competitive-rich market since employers rarely have to compete to entice or keep workers.

How companies have been able to largely avoid doling out worker wage gains is attributed to several phenomena in the report, including the widespread use of noncompete clauses in contracts, mandatory arbitration requirements, and working climates that discourage public disclosure of salaries and wages.

Workers typically have opportunities for higher wages when they move to a new company or position, or when they leverage a job offer for a raise at their current company. But when companies have agreed not to poach each other's workers, or an employee has signed a noncompete clause banning them from working for companies in the same field as their current employer, opportunities for wage growth can become slim to none, the researchers explain.

Nondisclosure agreements in a noncompetitive environment also achieve the effect of keeping wages and labor practices shrouded in secrecy, according to the report, which says workers wind up in the dark about whether they're receiving fair or competitive wages.

Labor experts are similarly troubled by mandatory arbitration agreements that require workers to resolve employment disputes in-house rather than going to court. Parameters of this sort can strip workers of their bargaining power and ability to make informed decisions about a workplace environment. Just last month, Congress passed legislation to end forced arbitration in cases of sexual assault and sexual harassment.

While the report does not provide evidence that the modern labor market is less competitive than in the past, the report's researchers assert that a lack of competition is a predominant force confining the power of workers and perpetuating low wages.

As a narrowing stream of employers become outsize players in the labor market, the report says, industries have turned to contract workers for positions that traditionally would have been filled by full-time employees.

"The labor market has become 'fissured,' a wide variety of roles ranging from cafeteria workers and janitors to lawyers that were once 'in-house' are now contracted out," the report states.

This outsourcing reduces wages anywhere from 4% to 24%, according to the report.

"Moreover, when firms misclassify workers, they offload labor costs and risks onto workers — for example, by avoiding unemployment insurance taxes and workers’ compensation premiums — and make it difficult for workers to organize or join a union and bargain collectively for better wages and conditions," the report continues.

Mergers and acquisitions have also consolidated industry power into fewer and fewer institutions.

The number of hospitals in the U.S. has fallen from 7,156 in 1975 to 6,093 in 2021 despite population growth, according to the report, which cites research that pay increases for nurses and pharmacy workers slowed during this period.

"Ultimately, these conditions cumulatively yield in uneven markets, where employers often have more leverage than workers," Treasury Secretary Janet Yellen said during a White House roundtable on Monday.

Women and people of color, who make up a larger share of lower-wage jobs, often feel the pain of an anticompetitive labor market the most.

"These workers often have diminished bargaining power because they lack the resources to easily switch jobs or occupations, to reject or negotiate against signing restrictive employment agreements, or to seek legal recourse for violations of labor and employment law," the report states.

The Biden administration laid out several policy recommendations for countering low wages, including raising the federal minimum wage from $7.25 to $15 an hour, a proposal that has yet to gain widespread support in Congress.

Among other proposals in the report is a push for antitrust prosecutions and to open up opportunities for collective bargaining.

Encouraging unionization has been a core policy push for Biden, who has repeatedly raised alarm at the low proportion of workers who belong to a union. In 2021, a mere 6% of private sector workers were union members.

Biden signed an executive order early last month requiring the use of project labor agreements for federal construction projects of a certain size as a means of guaranteeing union jobs.

Attorney General Merrick Garland said the Department of Justice is reviewing the federal standards for company mergers and will continue to prosecute antitrust violations.

"Anti-competitive labor practices undermine the free and fair labor markets upon which the integrity of our economy depends," Garland said during the roundtable. "They deny workers fair wages, fair terms of employment and just working conditions. They inhibit innovation, they rob aspiring entrepreneurs have a fair chance to start their own businesses simply put their barriers to the American dream."

In the fall, the Justice Department filed a civil antitrust lawsuit to keep the publishing giant Penguin Random House from acquiring its primary competitor, Simon & Schuster.

"This case demonstrates the Justice Department's commitment enforcing our antitrust laws protect workers, in this case, authors, just as vigorously as we protect consumers," Garland said.

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