Gives workers more control

Under the PRO Act, workers and the National Labor Relations Board, not employers, control the timing of union elections and employers can’t force employees to attend anti-union meetings.

Imposes real penalties when employers break the law

Under the PRO Act, employers and corporate executives are penalized for illegally retaliating against workers trying to organize, and workers get monetary damages or other remedies if they are illegally fired or harmed; fired workers must also be reinstated while their cases are pending.

Creates a roadmap to a first contract

Under the PRO Act, employers and workers have a set process to follow to negotiate a first union contract, and if they can’t reach an agreement they go to binding arbitration.

Strengthens strikes

Under the PRO ACT, employers are prohibited from permanently replacing workers when they strike, and workers are no longer banned from engaging in so-called “secondary” activity, such as boycotts, seeking leverage in negotiations.

Cracks down on worker misclassification

Under the PRO Act, workers can’t be wrongly deprived of their organizing and bargaining rights by being misclassified as supervisors or independent contractors.

For more on the comprehensive set of reforms in the PRO Act, see the EPI chart “How the PRO Act Restores Workers’ Right to Unionize.”

What this report finds and why it matters

Data from the Bureau of Labor Statistics (BLS) show that there was an upsurge in major strike activity in 2018 and 2019, marking a 35-year high for the number of workers involved in a major work stoppage over a two-year period. Further, 2019 recorded the greatest number of work stoppages involving 20,000 or more workers since at least 1993, when the BLS started providing data that made it possible to track work stoppages by size.

• After decades of decline, strike activity surged in 2018, with 485,200 workers involved in major work stoppages—a nearly twentyfold increase from 25,300 workers in 2017.
• The surge in strike activity continued in 2019, with 425,500 workers involved in major work stoppages.
• On average in 2018 and in 2019, 455,400 workers were involved in major work stoppages—the largest two-year average in 35 years.
• The upsurge in major work stoppages is largely fueled by an increase in stoppages involving at least 20,000 workers: In 2019, there were 10 work stoppages involving at least 20,000 workers.
• The increase in strike activity when the unemployment rate is less than 4% suggests two things.
  • One, workers know that if they are fired for strike activity, they will be more likely to find another job.
  • Two, workers are concluding that if even a sub-4% unemployment rate is not providing them with enough leverage to secure robust wage growth, they must join together to demand a fair share of the recovery.
• Crucial reforms found in the Protecting the Right to Organize (PRO) Act would strengthen the right to strike and would help ensure that workers have the leverage they need to secure their share of economic growth.

Introduction and key findings

From teachers in North Carolina to hospital workers in California, and from autoworkers in Michigan to grocery store cashiers in Boston, workers across the United States have participated in a resurgence in major work stoppages in the last two years. By far the most common form of work stoppage is a strike, which is when workers withhold their labor from their employer for a period of time during a labor dispute. By withholding their labor—labor that employers depend on to produce goods and provide services—workers are able to counteract the inherent power imbalance between themselves and their employer. In this way, strikes provide critical leverage to workers when bargaining with their employer over fair pay and working conditions or when their employer violates labor law.

In this brief, we cover the basics of strikes—who has the legal right to strike and when—and what policies to strengthen the right to strike are under consideration. We also analyze new data on major work stoppages from the Bureau of Labor Statistics (BLS) showing that after decades of a downward trend, there has been an upsurge in strike activity in the last two years.1

At first blush, it may seem odd that the United States is seeing a resurgence in strike activity when the unemployment rate is below 4%. The increased activity likely stems from two factors. First, workers know that if they are fired or otherwise pushed out of their jobs for participating in a strike (which is illegal but common behavior among employers), they are more likely to be able to find another job. Second—and perhaps even more important—working people are not seeing the robust wage growth that one might expect with such a low unemployment rate, and inequality continues to grow. The increase in strike activity suggests that working people are concluding that if even a sub-4% unemployment rate 10 years into an economic recovery is not providing enough leverage to generate truly robust wage growth, workers must join together to demand a fair share of the recovery.

Who has the legal right to strike?

Most private-sector workers in the United States are guaranteed the right to strike under Section 7 of the National Labor Relations Act (NLRA). Section 7 of the Act grants workers the right “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” This allows private-sector workers to engage in “concerted activities” such as strikes, regardless of whether the worker is in a union or covered by a collective bargaining contract. There is no federal law that gives public-sector workers the right to strike, but a dozen states grant public-sector workers the right to strike.2

In general, there are two types of strikes: economic strikes and unfair labor practice strikes. In an economic strike, workers withhold their labor as leverage when bargaining for better pay and working conditions. While workers in economics strikes retain their status as employees and cannot be discharged, their employer has the right to permanently replace them.3 At the conclusion of an economic strike, replaced workers are not automatically reinstated in their old jobs, but they have priority to apply for any future job openings. In other words, while workers have the legal right to participate in an economic strike—and remain employees while on strike—current law makes participation risky because workers might be out of a job when the strike concludes.

In an unfair labor practice strike, workers withhold their labor to protest their employer engaging in activities that they regard as a violation of labor law. Workers in an unfair labor practice strike cannot legally be discharged or permanently replaced. When an unfair labor practice strike concludes, workers who were on strike are entitled to be reinstated even if replacement workers have to be discharged. Workers in both economic and unfair labor practice strikes are entitled to back pay if the National Labor Relations Board finds that the employer unlawfully denied the workers request for reinstatement.

While Section 7 of the NLRA provides workers the right to strike, not all strikes are lawful. Under Section 8(b)(4) of the Act, it is currently unlawful for workers to be involved in “secondary” strikes, which are strikes aimed at an employer other than the primary employer (for example, when workers from one company strike in solidary with another company’s workers). If a strike is deemed an “intermittent strike”—when workers strike on-and-off over a period of time—it is not protected as a lawful strike by the NLRA. In general, a strike is also unlawful if the collective bargaining agreement between a union and the employer is in effect and has a “no-strike, no-lockout” clause.

Upsurge in very large work stoppages in the last two years

BLS data on major work stoppages–work stoppages involving 1,000 or more workers lasting one shift or longer—show that 425,500 workers were involved in major work stoppages that began in 2019.4 The 2019 level was slightly lower than the 2018 level, but as Figure A shows, there has recently been a meaningful “break” in the series. Through 2017, the general trend was downward, but there was a substantial upsurge in workers involved in major work stoppages in 2018. On average, in 2018 and 2019, 455,400 workers annually were involved in major work stoppages—the largest two-year pooled annual average in 35 years, since 1983 and 1984.

Figure A

One thing that is important to note when comparing the number of workers involved in major work stoppages over time is that other things in the economy have evolved as well. For example, the number of union members has declined, from 21 million in 1979 to 14.6 million in 2019.5 This means the share of union members involved in a major work stoppage has declined somewhat less rapidly than the raw levels over this period (the surge in 2018 and 2019 notwithstanding).6 In the 2018 and 2019 period, 3.1% of union members were involved in a work stoppage each year on average—a level of sustained resistance not seen since 1983.7 Furthermore, in the last two years, major work stoppages have involved more workers than ever before. In 2018/2019, an average of 20,000 workers were involved in each major work stoppage—the highest two-year average on record, back to 1947. By contrast, in earlier years when there were many more major work stoppages, they tended to be smaller. For example, 1952 had 470 major work stoppages—the most on record and many times the 25 major work stoppages that occurred in 2019—but each major work stoppage in 1952 involved “just” 6,000 workers on average.8

Figure B breaks down the data from Figure A into two sizes of major work stoppages—stoppages involving 20,000 workers or more, and stoppages involving at least 1,000 but less than 20,000 workers. The data to compute this breakdown are available only for 1993 and later years.9 The figure shows that the 2018 and 2019 upsurge in workers involved in major work stoppages has largely been the result of an increase in very large work stoppages—work stoppages involving at least 20,000 workers. In fact, in 2019, there were 10 work stoppages involving at least 20,000 workers, the largest number of work stoppages of this size since before 1993, when the data on work stoppages by size became available. Table 1 lists the 2019 work stoppages that involved more than 20,000 workers by organization name and number of workers involved.

Figure B

Table 1

Limitations of the BLS data on work stoppages

The BLS data on work stoppages, while useful, have a major limitation—the data include only information on work stoppages involving 1,000 or more workers that last at least one full shift. There is an enormous amount of information that is missed by restricting the data to work stoppages involving at least 1,000 workers, as evident in BLS data on firm size: according to the BLS, nearly three-fifths (59.4%) of private-sector workers are employed by firms with fewer than 1,000 employees.10 Restricting the tracking to actions that last at least one full shift also misses important work stoppages. For example, the data do not include the 2018 Google walkouts in protest of the company’s handling of sexual harassment, because even though the walkouts involved thousands of workers, they did not last for one full shift.11 Unfortunately, comprehensive data on work stoppages that involve fewer than 1,000 workers, or that last less than one full shift, are not readily available from BLS or other sources. Thus, there is a large gap in knowledge about the true extent of, and trends in, strike and lockout activity.

Examples of major work stoppages in 2018 and 2019

Teacher strikes

In February 2018, teachers went on a statewide strike in West Virginia to demand just wages and better teaching and learning conditions. For nine days, schools across the state were closed as teachers, students, and community supporters protested at the state capital against the state government’s chronic underfunding of public education and the impact on the teachers and students. After a week and a half on strike, the West Virginia teachers received a pay increase. They also sparked a movement that prompted public school teachers in other states to strike in support for better pay and working conditions.12

Consequently, the largest work stoppages by number of workers during 2018 and 2019 were in elementary and secondary schools in states such as Arizona, Colorado, Kentucky, North Carolina, and West Virginia.13 Community support, such as students and parents protesting in solidarity at schools and state capitals, made it possible for hundreds of thousands of teachers to strike in an effort to improve their pay and working conditions.

The General Motors strike

In the early hours of September 16, 2019, nearly 50,000 workers walked out of General Motors (GM) factories across the nation and went on strike. The action followed GM’s decision to close multiple U.S.-based factories and move jobs abroad, even after the company received millions in corporate tax cuts.14 GM workers went on strike to preserve job security, improve wages, and retain health care benefits. The GM strike was the longest major work stoppage in 2019, with over 1.3 million days idle.15 The strike was also the first GM strike in over a decade.

The six week strike concluded with the United Auto Workers and GM agreeing to a four-year contract that improved wages, sustained health care costs for workers at existing levels, created a transition process for temporary workers to become permanent employees, and committed to making investments in American factories.16 In addition to improving the pay and working conditions of GM workers, the final contract will serve as a template for UAW’s contracts with Ford and Chrysler, creating a set of standards in the automotive industry.17

The Stop & Shop strike

Another notable major work stoppages of 2019 was the Stop & Shop strike. More than 30,000 workers at the New England-based grocery chain went on strike after negotiations over new contracts stalled for three months. During those negotiations, Stop & Shop had offered workers across-the-board pay increases but also proposed increasing the cost of health care, ultimately negating the pay raises. The workers argued that Stop & Shop could offer better compensation than it did because the company reported profits of more than $2 billion in 2018.18 As a result of the impasse, workers in over 240 locations went on strike for better pay and benefits during the week of Easter.

The Stop & Shop strike was the second largest private industry work stoppage in 2019, with over 215,000 days idle. The 11 day strike concluded with the United Food and Commercial Workers and Stop & Shop agreeing to a three-year contract that preserved health care benefits, increased wages, and maintained time-and-a-half pay on Sunday for current employees.19

Policies to strengthen the right to strike

The resurgence is in strike activity is occurring despite current policy that makes it difficult for many workers to effectively engage in their fundamental right to strike.

The Protecting the Right to Organize (PRO) Act includes critical reforms that would strengthen workers’ right to strike. The PRO Act would expand the scope for strikes by eliminating the prohibition on secondary strikes and by allowing the use of intermittent strikes. It would also strengthen workers’ ability to strike by prohibiting employers from permanently replacing striking workers. Further, the PRO Act would strengthen undocumented workers’ right to strike by overturning the Supreme Court’s decision in Hoffman Plastic Compounds v. NLRB, which held that undocumented workers are not entitled to reinstatement or back pay if their employer violated their workplace rights. The PRO Act passed the House of Representatives February 6, 2020, but is unlikely to advance in the Senate in the near future.

In addition to the crucial reforms found in the PRO Act, there are additional solutions under discussion that would strengthen the right to strike, including extending unemployment benefits to striking workers, creating tax-deductible strike funds to make it easier for unions to sustain long-term strikes, and forming digital picket lines to inform consumers of real-life collective actions during online interactions with the workers’ employer.20 All of these policies, and those of the PRO Act, are part of an important effort to bring U.S. labor law into the 21st century.

Conclusion

The unemployment rate averaged 3.8% in 2018 and 2019, its lowest level in 50 years. At first blush, it may seem odd that the U.S. is seeing a resurgence in strike activity at a time like this. The increased activity likely stems from two factors. First, workers know that if they are fired or otherwise pushed out of their job for participating in a strike (which is illegal but common), they are more likely to be able to find another job. Second and perhaps even more important, working people are not seeing the robust wage growth that one might expect with such a low unemployment rate, and wage levels for working people remain low, with many families struggling to make ends meet. The wage of the median worker is about $19 per hour, which translates to about $40,000 per year for a full-time, full-year worker, a level that suggests that the U.S. economy is not delivering for many working people.21 Further, inequality continues to rise, as the people who already have the most see strong gains.22 The increase in strike activity suggests that more and more, working people are concluding that if even a sub-4% unemployment rate 10 years into an economic recovery is not providing enough leverage to meaningfully boost their wages, they must join together to demand a fair share of this recovery.

About the authors

Heidi Shierholz is a senior economist and the director of policy at EPI. She previously served as chief economist at the U.S. Department of Labor. Margaret Poydock is policy associate at EPI. She previously held legislative positions in the U.S. Senate.

Endnotes

1. The BLS Work Stoppages program provides monthly and annual data on work stoppages (strikes and lockouts) involving 1,000 or more employees. Both strikes and lockouts are work stoppages initiated during a labor dispute for the purpose of gaining leverage, but whereas strikes are initiated by workers, lockouts are initiated by management. BLS does not distinguish between strikes and lockouts in its work stoppage data. However, lockouts are rare relative to strikes, so it is reasonable to think of the major work stoppage data as a proxy for data on major strikes.

2. Kirsten Bass, “Overview: How Different States Respond to Public Sector Labor Unrest,” On Labor, March 11, 2014.

3. In NLRB v. Mackay Radio & Telegraph Co., the U.S. Supreme Court ruled that employers can permanently replace striking workers in order to keep their business running during a work stoppage.

4. Bureau of Labor Statistics, “Major Work Stoppages in 2019” (news release), February 11, 2020.

5. Union Stats, “Union Membership, Coverage, Density, and Employment among All Wage and Salary Workers, 1973–2018” (web page), accessed on February 7, 2020.

6. Another thing that has evolved is the fact that employment of wage and salary workers has grown substantially, from 87.1 million in 1979 to 141.7 million in 2019. (See Union Stats, “Union Membership, Coverage, Density, and Employment Among All Wage and Salary Workers, 1973–2018” (web page), accessed February 7, 2020.) This means the share of workers involved in a major work stoppage has declined more rapidly than the raw levels have declined over this period (again, the surge in the 2018 and 2019 period notwithstanding).

7. It is important to note that strikes and lockouts may involve workers who are not union members. However, because strikes and lockouts are far more likely to involve union members, it is reasonable to look at the number of workers involved in a work stoppage as a share of union members.

8. Bureau of Labor Statistics, “Major Work Stoppages in 2019” (news release), February 11, 2020, and related table, “Annual Work Stoppages Involving 1,000 or More Workers, 1947–2019.”

9. Data with the aggregate number of major work stoppages and the aggregate number of workers involved in major work stoppages are available annually from 1947. But data showing the size of each major work stoppage (which allows for the determination of whether an individual work stoppage involved 20,000 workers or more), are only available from 1993.

10. Bureau of Labor Statistics, “Table F. Distribution of private sector employment by firm size class: 1993/Q1 through 2019/Q1, not seasonally adjusted,” [web page], National Business Employment Dynamics Data by Firm Size Class, last modified January 29, 2020.

11. Taylor Telford and Elizabeth Dwoskin, “Google Employees Worldwide Walk Out Over Allegations of Sexual Harassment, Inequality Within Company,” The Washington Post, November 1, 2019.

12. Katie Reilly, “‘I Work 3 Jobs and Donate Blood Plasma to Pay the Bills.’ This is What It’s Like to Be a Teacher in America,” Time, September 13, 2020.

13. Bureau of Labor Statistics, “Major Work Stoppages in 2019” (news release), February 11, 2020, and related table, “Detailed Monthly Listing, 1993-Present.”

14. Americans for Tax Fairness, “GM Layoffs Prove Tax Cuts Hurt, Don’t Help, Workers,” Americans for Tax Fairness, November 27, 2019.

15. Days idle refers to the number of working days lost multiplied by the number of workers.

16. Alexia Fernández Campbell, “The GM Strike Has Officially Ended. Here’s What Workers Won and Lost.,” Vox, October 25, 2019.

17. Alexia Fernández Campbell, “GM Workers Are on Strike to Accomplish What Trump Couldn’t,” Vox, September 17, 2019.

18. Sarah Betancourt, “Stop & Shop Hit by Strike As 31,000 Workers Walk Off Job,” Guardian, April 19, 2019.

19. Sandra E. Garcia, “Stop & Shop Strike Ends With Union Claiming Victory on Pay and Health Care,” New York Times, April 22, 2019.

20. Sharon Block and Ben Sachs, Clean Slate for Worker Power: Building A Just Economy and Democracy, Clean Slate for Work Power, January 2020.

21. Elise Gould, “On the other hand, the 20th percentile has done better over the last two years, and in fact exhibited the strongest growth (+2.6 percent annualized) over the last two years compared to any other decile, including the 95th percentile. 21/n,” Twitter, @eliselgould, August 2, 2019, 10:19 a.m.

22. Lawrence Mishel and Melat Kassa, “Top 1.0% of Earners See Wages Up 157.8% Since 1979,” Working Economics (Economic Policy Institute blog), December 18, 2019.

Amy DeBisschop
Director, Division of Regulations, Legislation, and Interpretation
Wage and Hour Division (WHD)
U.S. Department of Labor, Room S-3502
200 Constitution Avenue NW
Washington, DC 20210

Re: Tip Regulations Under the Fair Labor Standards Act (FLSA) (RIN 1235–AA21)

Dear Ms. DeBisschop,

The Economic Policy Institute (EPI) is a nonprofit, nonpartisan think tank created in 1986 to include the needs of low- and middle-income workers in economic policy discussions. EPI conducts research and analysis on the economic status of working America, proposes public policies that protect and improve the economic conditions of low- and middle-income workers, and assesses policies with respect to how well they further those goals.

EPI writes in response to the Department of Labor’s proposed rulemaking regarding tip regulations under the FLSA,1 which seeks to align the Department’s tip regulations with the recently established section 3(m)(2)(B) of the FLSA, as enacted in the Consolidated Appreciations Act of 2018 (CAA). EPI commends the Department’s efforts to implement section 3(m)(2)(B), however, we urge the Department to clarify that employers cannot reduce the wages of “back of the house” staff and supplement their wages with the earnings of tipped employees.

Further, EPI strongly opposes the Department’s proposal to abandon the long-standing “80/20” rule, which provides employers guidance on the use of the tip credit for non-tipped work. EPI also opposes the Department’s proposed change that would make it harder for the Department to collect civil penalties for a wide range of labor violations. We strongly urge Department to withdraw both of these proposals from the rulemaking, and codify a standard at least as protective as the 80/20 rule.

The proposed rule should clarify that employers cannot reduce back-of-the-house employees’ wages and have the difference filled in with tips

In March 2018, through the Consolidated Appropriations Act of 2018Congress added section 3(m)(2)(B) to the FLSA, which prohibits employers from keeping tips received by employees. Under the FLSA, employers are authorized to establish mandatory tip pools between tipped employees in the “front of the house,” such as bartenders and servers, and non-tipped employees in the “back of the house,” such as dishwashers and line cooks. However, these tip pools are only permissible if two conditions are met: 1) the employer pays all employees at least the full minimum wage, before tips (rather than taking a “tip credit” that counts a portion of employee tips toward its minimum wage obligation), and 2) the employer, managers, and supervisors do not keep any portion of employees’ tips.

In the proposed rulemaking, the Department permits employers to reduce the wages of back of the house staff and supplement their wages with the earnings of tipped employees as long as the employees’ wages are not reduced below the applicable minimum wage.2 This permissibility is contrary to the intent of Congress when establishing section 3(m)(2)(B) of the FLSA to ensure that employees—not employers—are the sole beneficiary of tips. In order to limit the amount of tips that employers can capture as a result of establishing mandatory tip pools, we urge the Department to clarify that no such activity is permitted.3

The proposed removal of the 80/20 guidance would cost workers millions each year

The recently established section 3(m)(2)(B) of the FLSA makes it clear that employers are not allowed to pocket workers’ tips. But employers can legally “capture” some of workers’ tips by paying tipped workers less in base wages than their other workers. For example, the federal minimum wage is $7.25 an hour, but employers can pay tipped workers a “tipped minimum wage” of $2.13 an hour as long as employees’ base wages and the tips they receive over the course of a week are the equivalent of at least $7.25 per hour. All but eight states have a subminimum wage for tipped workers.4

In a system like this, the more non-tipped work that is done by tipped workers earning the subminimum wage, the more employers benefit. This is best illustrated with a simple example. Say a restaurant has two workers—one doing tipped work and one doing non-tipped work—who both work 40 hours a week. The tipped worker is paid $2.50 an hour in base wages, but gets $10 an hour in tips on average, for a total of $12.50 an hour in total earnings. The non-tipped worker is paid $7.50 an hour. In this scenario, the restaurant pays their workers a total of ($2.50+$7.50)*40 = $400 per week, and the workers take home a total of ($12.50+$7.50)*40 = $800 (with $400 of that coming from tips).

But suppose the restaurant makes both those workers tipped workers, with each doing half tipped work and half non-tipped work. Then the restaurant pays them both $2.50 an hour, and they will each get $5 an hour in tips on average (since now they each spend half their time on non-tipped work) for a total of $7.50 an hour in total earnings. In this scenario, the restaurant pays out a total of ($2.50+$2.50)*40 = $200 per week, and the workers take home a total of ($7.50 + $7.50)*40 = $600. The restaurant’s gain of $200 is the workers’ loss of $200, simply by having tipped workers spend time doing non-tipped work.

To limit the amount of tips employers can capture in this way, the Department of Labor has historically restricted the amount of time tipped workers can spend doing non-tipped work if the employer is paying the subminimum wage. For the past 30 years, the Department has issued guidance that non-tipped work may not exceed more than 20 percent of a tipped workers time.5 Known as the 80/20 rule, this guidance was implemented to help ensure employers were not paying tipped workers the subminimum wage for work that non-tipped workers would typically perform. Under the 80/20 rule, employers can only claim a “tip credit”—i.e., pay tipped workers a base wage less than the regular minimum wage—if tipped staff spend no more than 20 percent of their time performing non-tipped functions; at least 80percent of their time must be spent in tip-receiving activities. The protection provided by this rule is critical for tipped workers. For example, in a restaurant, the 80/20 rule prevents employers from expecting servers to spend hours washing dishes at the end of the night, or prepping ingredients for hours before the restaurant opens. Occasionally, a server might play the role of the host, seating guests when a line has formed, or filling salt and pepper shakers when dining service has ended—but such activities cannot take up more than 20percent of their time without employers paying them the full minimum wage, regardless of tips.

If the Department abandons the 80/20 rule as proposed, workers would be left with a toothless protection in which employers would be allowed to take a tip credit “for any amount of time that an employee performs related, non-tipped duties contemporaneously with his or her tipped duties, or for a reasonable time immediately before or after performing the tipped duties.”6

With no meaningful limit on the amount of time tipped workers may perform non-tipped work, employers could capture more of workers’ tips. It is not hard to imagine how employers of tipped workers might exploit this change in the regulation. Consider a restaurant that employs a cleaning service to clean the restaurant each night: vacuuming carpets, dusting, etc. Why continue to pay for such a service, for which the cleaning staff would need to be paid at least the federal minimum wage of $7.25 per hour, when you could simply require servers to spend an extra hour or two performing such work and only pay them the tipped minimum wage of $2.13 per hour? Or, a restaurant that currently employs three dishwashers at a time might decide they can manage the dish load with only one dedicated dishwasher if they hire a couple extra servers and require all servers to wash dishes periodically over the course of their shifts. Employers could pay servers less than the minimum wage for hours of dishwashing so long as they perform some tipped work right before or after washing dishes.

The Department recognizes that workers will lose out under this change, stating that “tipped workers might lose tipped income by spending more of their time performing duties where they are not earning tips, while still receiving cash wages of less than minimum wage.”7 Tellingly, DOL did not provide an estimate of the amount that workers will lose—even though it is legally required, as a part of the rulemaking process, to assess all quantifiable costs and benefits “to the fullest extent that these can be usefully estimated.”8 The Department claims it “lacks data to quantify this potential reduction in tips.”9 However, EPI easily produced a reasonable estimate using a methodology that is very much in the spirit of estimates the Department of Labor regularly produces. In particular, we estimate that as employers ask tipped workers to do more non-tipped work as a result of this rule, employment in non-tipped food service occupations will decline by 5.3% and employment in tipped occupations will increase by 12.2%—shifting 243,000 jobs from being non-tipped to being tipped. Further, we conservatively estimate the proposed rule would cost workers more than $700 million annually if finalized.10 For this reason, we urge the Department to withdraw their proposal to abandon the long-standing 80/20 rule and to instead codify a standard at least as protective as the 80/20 rule.

The proposed rule makes it harder to hold employers account for workplace violations

As established under the CAA, any person who willfully violates section 3(m)(2)(B) of the FLSA shall be subjected to a civil penalty of up to $1,100 for each such violation. In the NPRM, however, the Department proposes to weaken the definition of “willful,” creating a vague, weaker standard than the longstanding, bright-line rules in existing regulations. And, in addition to applying the weakened definition of willfulness to protections under section 3(m)(2)(B), the Department shamefully seeks to apply the weaker definition to minimum wage, overtime, and child labor protections that are not at issue in this rulemaking. The new definition of willful should be withdrawn.

Conclusion

The Economic Policy Institute supports the Department of Labor in seeking to align its tip regulations with section 3(m)(2)(B) of the FLSA. However, we implore the Department to clarify that employers cannot reduce the wages of back of the house staff and supplement their wages with the earnings of tipped employees. We also urge the Department to withdraw its proposed changes to the 80/20 rule and its redefining of the willfulness standard in regards to civil penalties for labor violations.

Sincerely,

Heidi Shierholz
Senior Economist and Director of Policy
Economic Policy Institute

Margaret Poydock
Policy Associate
Economic Policy Institute

1. 84 Federal Register at 53956.

2. See 84 Fed. Reg. at 53957 and 53968 (“because back-of-the-house workers could now be receiving tips, employers may offset this increase in total compensation by reducing the direct wage that they pay back-of-house workers (as long as they do not reduce these employees’ wages below the applicable minimum wage)”).

3. For an example of how tip pooling can allow employers to capture a portion of workers’ tips even when employers are not taking a tip credit, see Heidi Shierholz, “A perfect pairing: New tip provisions and a strong minimum wage,” Working Economics (Economic Policy Institute blog), March 27, 2018.

4. Economic Policy Institute, “Minimum Wage Tracker” (website), last modified October 9, 2019.

5. This guidance was in effect from December 9, 1988 until January 16, 2009 and again from March 2, 2009 until November 8, 2018. U.S. Dep’t of Labor, Wage & Hour Div., Opinion Letter, FLSA 2009-16 (Jan. 16, 2009); U.S. Dep’t of Labor, Wage & Hour Div., Opinion Letter, FLSA 2009-23 (Jan. 16, 2009); U.S. Dep’t of Labor, Wage & Hour Div., Opinion Letter, FLSA 2018-27 (Nov. 8, 2018).

6. 84 Federal Register at 53957.

7. 84 Federal Register at 53972.

8. Congressional Budget Office, “Cost-Benefit and Other Analysis Requirements in the Rulemaking Process,” Publication no. R41974, December 2014.

9. 84 Federal Register at 53972.

10. Heidi Shierholz and David Cooper, “Workers will lose more than $700 million dollars annually under proposed DOL rule,”Working Economics (Economic Policy Institute blog), November 30, 2019.

Federal and state antitrust enforcers are currently reviewing the proposed merger of Sprint and T-Mobile, which would cut the number of national players in the U.S. wireless industry from four to three. One aspect of the merger that has received little attention is its impact on competition in the local labor markets for retail wireless workers.

In this paper, we draw upon a nascent but fast-growing empirical economics literature on the earnings effect of labor market concentration to estimate how the Sprint–T-Mobile merger would affect earnings of workers at the U.S. stores that sell the wireless services of the merging firms and their competitors.

Our analysis begins with existing research on how much the merger would increase labor market concentration in the U.S. labor markets where both Sprint and T-Mobile are active. That is significant, because concentration of employers is one of the reasons we expect that labor markets are monopsonized as a matter of course. Monopsony power is when employers have power to set wages unilaterally, and workers generally earn less than they are worth. Concentration of employers confers monopsony power because workers lack the job opportunities that would ensure pay would track their productivity.

We then apply estimates of the effect of concentration on earnings from three recent studies. We find that the merger would reduce earnings in the affected labor markets. Specifically, in the 50 most affected labor markets, we predict that weekly earnings would decline by $63 on average (across markets) using the specification with the largest magnitude, and $10 on average using the smallest-magnitude specification. These weekly earnings declines correspond to annual earnings declines of as high as $3,276 (or $520 under the smallest-magnitude specification).

Researchers have found that unionization mitigates the earnings-reducing effect of concentration. Thus, one of the reasons why the economy has become more monopsonized over time is that worker power has been reduced through declining union coverage. For the retail wireless labor markets we study, Change to Win estimates that the unionization rate is approximately 9 percent.

The earnings decline we predict reflects the fact that in nearly all of the commuting zones where both merging parties are active (the labor market definition we use here), the change in the Herfindahl-Hirschman Index (HHI) measure of concentration due to the merger would exceed 200 HHI, which is the threshold for triggering enforcement concerns under the federal government’s Horizontal Merger Guidelines. And literally all of the commuting zones that have wireless store locations would have a post-merger labor market concentration that exceeds the threshold for “highly concentrated”—2,500 HHI under the Horizontal Merger Guidelines.

The idea that labor market impact should be considered in reviewing mergers represents a departure from the antitrust enforcement status quo. But given the reality of monopsony power in labor markets, it is a departure that antitrust enforcers themselves have agreed is necessary. In recent Senate testimony, Federal Trade Commission (FTC) Chairman Joseph Simons said that he had directed FTC staff to consider labor market impact for every merger the agency reviews, and the principles that he said should guide such an analysis align with the approach we take in this paper.

Enforcers with a mandate to preserve competition must take labor markets as well as product markets into account when assessing competitive effects of any merger or conduct they might review. That includes the federal agencies reviewing this merger—the FCC and the Department of Justice Antitrust Division—as well as state attorneys general and public utility commissions. In this paper, we provide a current example of how that could be done.

Finally, antitrust enforcement, and merger review especially, are insufficient policy responses to the problem of monopsony. Unionization has been shown to mitigate the ill effects of employer concentration on wages, presumably because it provides for commensurate countervailing power. Antitrust alone will never be a solution to the crisis of worker power in this country. It must be considered alongside such policies as increasing the minimum wage, ensuring macroeconomic full employment, increasing progressive taxation, improving labor standards and their enforcement, and mitigating shareholder power over companies that comes at the expense of other stakeholders.

Introduction

Government has a legitimate and long-established interest in reviewing the impact of mergers on competition. That interest has, until now, been almost entirely focused on the way in which mergers affect competition in the markets for the goods and services that the merging parties sell. Recent research in labor economics, however, emphasizes that the concentration of employers in labor markets can have a significant negative impact on wages.1 Some of that research also finds that such wage-setting power on the part of concentrated employers can be counteracted by the unionization of workers.

This new research has profound implications for merger review, because it establishes that profit-maximizing firms in concentrated labor markets would use their market power to harm workers as well as or in addition to harming customers. That possibility necessitates an expansion of antitrust enforcers’ mandate to analyze competitive effects in labor markets as well as product markets as a routine part of reviewing mergers.

The proposed merger between Sprint and T-Mobile threatens to reduce competition in wireless telecommunications services by eliminating one of the existing four providers of such services in the United States. An analysis conducted by the Communications Workers of America (Goldman, Grunes, and Stucke 2018) estimates that a standard measure of industry product market concentration, the Herfindahl-Hirschman index (HHI),2 would increase from 2,811 to 3,243 in wireless as a result of this merger. This increase places HHI in wireless squarely above the thresholds for enforcement action established by the Horizontal Merger Guidelines promulgated by the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission (FTC) (Goldman, Grunes, and Stucke 2018).3 We already know that the telecoms sector in the United States suffers from lack of competition, despite—or perhaps, because of—the deregulatory agenda of the Telecommunications Act of 1996 (Hwang and Steinbaum 2017). For that reason, further consolidation would be poor economic and sectoral policy. And simply by virtue of the structural presumption for illegality established by United States v. Philadelphia National Bank,4 the merger would violate the Clayton Act. This is not only problematic for consumers: this merger would diminish competition for workers and lead to a deterioration in wage and employment conditions.

In this paper, we turn to the merger’s effect on the labor market for retail workers who sell electronics and related services, specifically the subset who sell wireless equipment and services. Wireless equipment and services, including repairs, are sold to consumers through brick-and-mortar retail locations that are either corporately owned by the service providers or authorized dealers of those suppliers. In addition, the licensees of wireless spectrum sell their telecommunications services on both a prepaid and a postpaid basis, with AT&T, Sprint, and T-Mobile each having a prepaid services affiliate. For the purpose of this analysis, we consider geographic labor markets at the commuting zone level, and we define the “line of business” as retail workers selling wireless services in stores either owned or affiliated with the prepaid or postpaid services of the two merging parties (Sprint and T-Mobile), as well as their competitors Verizon and AT&T.

We report the effect of the merger on concentration in labor markets defined by retail wireless store employment by commuting zone, and we predict how increased concentration would be likely to affect retail wireless workers’ earnings in each market. To do that, we use four recent empirical estimates of labor market concentration on earnings. Given that all of the estimates find a negative earnings effect of higher concentration, we predict the same, with variation based on the specification used and the change in concentration in local labor markets as a result of the merger. We find that average weekly earnings for retail wireless workers would decline by as much as 7 percent in the specification with the largest magnitude, while in the bulk of the labor markets affected by the merger, earnings would decline by between 1 and 3 percent. For the 50 most affected labor markets, those percent changes correspond to a decline in weekly earnings of $63 on average for the largest-magnitude specification, and a decline of $10 for the smallest-magnitude specification.

In short, enforcers with a mandate to preserve competition must take labor markets as well as product markets into account when assessing competitive effects of any merger or conduct they might review. In this paper, we provide a current example of how that could be done.

In the first section, we identify broad trends in the labor market for retail workers who sell wireless equipment and services. We also review the recent literature on monopsony power in labor markets. In the second section, we explain how labor markets are defined for the purpose of predicting the impact of the Sprint–T-Mobile merger and present the employment concentration calculations used to make our predictions. We then explain how post-merger counterfactuals are implemented and report our results. In the third section, we summarize our policy recommendation for this merger and for merger review in labor markets in general and as a matter of ongoing competition enforcement.

The labor market for retail workers in electronics and the wireless subsector

The economics literature on industrial organization in retail points to a tug of war between two trends: big-box and chain stores replacing single establishment firms or smaller chains, and the move from brick-and-mortar retail stores to e-commerce (Hortacsu and Syverson 2015). For many years following the rise of Amazon, eBay, and other companies using e-commerce platforms, the former remained the dominant trend, with total employment and output in brick-and-mortar retail growing as commerce moved to establishments with a larger sales volume. The effect was both to increase the revenue product of retail employees (total revenue divided by employment) and to reduce labor’s share of value-added in the sector (Ganapati 2018).

It is only in the last few years that we have seen the “end of retail,” or at least the beginning of the end of retail, as e-commerce platforms have made substantial improvements to their logistics networks that provide a greater online shopping convenience than that offered by the prototypical shopping mall or big-box store. Since 2016, employment has flatlined in retail even as jobs have been added in the overall economy (BLS 2018). A number of high-profile bankruptcies, such as those of Toys R Us, RadioShack, and Sears, as well as notable financial difficulties of chains such as Staples and Barnes & Noble, have added to the sense that the era of brick-and-mortar retail is coming to an end. The involvement of private equity funds, which loaded up their portfolio companies with debt to take a quick dividend, seems to be hastening the trend.

For the purpose of this paper, we first report on labor market outcomes for workers in North American Industry Classification System (NAICS) industry 443142, retail establishments selling electronic equipment and related services. This industry includes the wireless retail outlets vending the products and services of the merging parties Sprint and T-Mobile and their main competitors, AT&T and Verizon, including their prepaid services affiliates. Our aggregate time series data going back to 1990 come from the Bureau of Labor Statistics’ Current Employment Statistics program, which reports outcomes for workers by detailed industry classification nationally.

As shown in Figure A, employment in the retail electronics industry reached its peak at around 450,000 at the end of the economic boom of the late 1990s, and since then has been declining, probably as commerce moved from smaller establishments specializing in electronics to big-box chain stores like Walmart, Best Buy, and Target with higher revenue per worker and from brick-and-mortar establishments to e-commerce. We see the total employment in this industry declining during recessions and failing to rebound during expansions—and most recently, declining outright since 2016 even during a relatively tight labor market.

Figure A

The wireless telecoms sector is a significant component of this industry. Researchers at Change to Win (2018) estimate total retail employment among AT&T, Verizon, Sprint, T-Mobile, and their prepaid affiliates (including both corporate stores and authorized dealers) is currently approximately 220,000.

As establishment size has increased, employment has become concentrated among fewer industry players. This is true for the economy overall, for retail overall, and for subsectors of retail. Big-box stores were always a concentrated industry nationally—hence, their ability to underprice the competition by obtaining price concessions from wholesalers—and as big-box stores have gained market share, the sector as a whole has become compositionally more concentrated. Rinz (2018) tracks how much more concentrated the 2-digit NAICS sectors 44–45 (encompassing all retail) have gotten between 1980 and 2015 when measured by employment: their HHI nationally increased from 200 at the start of the period to 1,000 in 2015. In past research, we have linked concentrating employment to declining “business dynamism” and labor mobility: as employers become fewer, workers stay in a given job longer due to the absence of outside job offers that might entice them away (Konczal and Steinbaum 2016).

Recent research confirms that while concentration has increased economywide, including in retail employment, local labor markets have become less concentrated (Rossi-Hansberg, Sarte, and Trachter 2018; Rinz 2018). The reason is that national chains and big-box stores are growing by entering local markets without completely replacing local firms or chains, increasing the number of local competitors. However, the trend in local labor market concentration remains unclear, as other studies (e.g., Ganapati 2018) find that local labor markets are increasingly concentrated, with the discrepancy arising from differing treatment of local markets (defined by industry and geography) in which there is no employment and there are no active firms at a given time.

As shown in Figure B, real hourly wages and weekly earnings for retail workers rebounded from the losses the sector experienced during the Great Recession, but since then, they’ve been stagnant (except for monthly fluctuations). This trend mirrors similar economywide wage stagnation, a puzzle given the low unemployment rate. It is exactly that puzzle that has given rise to the recent academic and policy interest in employer power to set wages—“monopsony power,” broadly defined—as an explanation.5

Figure B

There is good reason to believe that monopsony power in the U.S. economy has been on the rise in recent decades. The share of workers who belong to a union or whose terms of employment are collectively bargained has been on the decline since the 1950s. The “bite” of the minimum wage—its value as a share of median earnings—has similarly been declining (Cooper, Mishel, and Schmitt 2015). Both of these trends—declining unionization and the eroding value of the minimum wage—imply that employers have wider discretion to set wages.

Other evidence of rising monopsony power includes the trends of declining job-to-job mobility, along with the flattening earnings–tenure relationship for workers who remain at a single job, and rising inequality of earnings for workers working in different firms, as low-wage workers are increasingly excluded from high-wage firms as a way of limiting profit-sharing (Hyatt and Spletzer 2016; Molloy et al. 2016; Song et al. 2018). In both experimental and natural settings, employers are observed to face low elasticities of labor supply, meaning that they can vary the wage they pay substantially without fear that their workers will leave for their competitors or exit the labor market entirely (Webber 2015; Dube, Giuliano, and Leonard 2015; Dube et al. 2018). Furthermore, the fact that legislated increases in the minimum wage have been found not to have an adverse impact on employment implies wage indeterminacy in the employment relationship, which is also an implication of monopsonized labor markets as opposed to competitive ones (Cengiz et al. 2018).

Another reason to think that monopsony power is increasing in the economy is that the “large firm wage premium” has declined—and in fact it has been erased in retail. The large firm wage premium is the earnings advantage that otherwise-similar workers at large firms enjoy relative to their counterparts at small firms. The differential has become negative in retail, meaning that workers at large firms earn less than their counterparts at small ones (Bloom et al. 2018). This is likely due to the prevalence of low-wage, high-turnover business models at dominant chains like Walmart as the value of the minimum wage has eroded along with other labor standards and union coverage has dwindled.

Why is the declining large-firm wage premium evidence of monopsony power? Because it likely arises from the fact that large, economy-leading firms operate in a systematically less egalitarian manner than they once did. In the past, large firms served to compress the earnings distribution among their workers (Weil 2014). One reason that has ceased to be the case is ease of outsourcing, which in turn sharpens the threat that can be wielded against workers who might otherwise make claims on the profitability of leading enterprises by demanding higher wages (Dube and Kaplan 2010).

For all of these reasons, we expect that the labor markets for the retail workers who would be affected by the Sprint–T-Mobile merger are monopsonized. This has profound implications for the competitive impact of such a merger in the relevant labor markets. We would expect that employers who face upward-sloping labor supply curves thanks to their monopsony power would maximize profits by using that power to depress wages. Numerous recent publications point to such an effect as harm to competition within the meaning of the Clayton Act (Ohlhausen 2017; Hemphill and Rose 2018; Marinescu and Hovenkamp 2018; Naidu, Posner, and Weyl 2018). Moreover, the Horizontal Merger Guidelines recognize that harm to competition in upstream markets as a result of a merger is grounds for blocking it, even in the absence of harm to competition downstream.

The reality of monopsony power in input markets contravenes the standard case of merger review in the presence of oligopoly power in output markets: that increased prices due to enhanced market power are to be balanced with merger efficiencies in the form of lower input costs in order to determine whether the merger threatens to reduce consumer surplus. In that standard case, any market power used to reduce the marginal cost of inputs without raising the price of output is considered to add to, rather than detract from, aggregate welfare (Glick 2018). The reality of monopsony power in labor markets implies the contrary: that market power is used to reduce aggregate welfare by restricting employment and lowering wages to increase private profits. That economic intuition establishes the legal relevance of the empirical exercise in the following section because any reduction in wages post-merger likely reflects the monopsony power that the Clayton Act is meant to prevent in its incipiency.

The earnings effect of the Sprint–T-Mobile merger

Three recent working papers estimate the effect of employer concentration in labor markets on earnings: “Labor Market Concentration” (Azar, Marinescu, and Steinbaum 2017); “Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages?” (Benmelech, Bergman, and Kim 2018); and “Labor Market Concentration, Earnings Inequality, and Earnings Mobility” (Rinz 2018). Each of these papers defines labor markets slightly differently and each uses many specifications to estimate the effect of concentration on earnings. In this section, we apply estimates from those papers to predicted changes in labor market concentration in wireless retail resulting from the Sprint–T-Mobile merger.

The labor market definition used here is by commuting zones and by retail employment by the merging parties, their prepaid affiliates, and their wireless competitors, including both corporate-owned and authorized-dealer stores. Geographically, the market definition closely matches that of the papers by Azar, Marinescu, and Steinbaum (2017) and Rinz (2018). It is wider than the county-level market definition used by Benmelech, Bergman, and Kim (2018). The “line of business” dimension is probably narrower here than in any of those papers (and narrower than even the six-digit NAICS sector analyzed in the previous section, which included more than just retail establishments selling mobile telecommunications services, equipment, and repairs). The papers we use to estimate earnings effects employ either the 4-digit SIC code definition (Rinz 2018; Benmelech, Bergman, and Kim 2018) or the 6-digit occupations in the Standardized Occupational Classification system (Azar, Marinescu, and Steinbaum 2017). Although we do not use them here, Azar, Marinescu, and Steinbaum (2017) also include a specification at the job title level in their vacancy regressions. And Benmelech, Bergman, and Kim (2018) are able to perform their regressions within firms, using variation in market concentration among the plants where those firms are simultaneously hiring. Both of those specifications narrow the market definition considerably, without finding substantially different results in terms of the magnitude of the estimated earnings elasticity to measured concentration.

The aforementioned studies of firm-level labor supply elasticities imply that narrow market definitions are appropriate in labor markets. So does a now-substantial literature on low worker mobility in labor markets across both geography and occupation (Yagan 2018; Bartik 2018). The typical market definition exercise in antitrust is critical loss analysis, which uses substitution elasticities to investigate the market definition in which it would be profitable for a “hypothetical monopolist” to increase prices. If consumers would switch away, rendering the increase unprofitable, then the market is defined too narrowly and should be broadened to include the alternatives to which they would switch. If it would be profitable for a hypothetical monopolist to raise prices, then the market is defined too broadly and should be narrowed. Recent Congressional testimony by Federal Trade Commission (FTC) Chairman Joseph Simons validates this critical loss analysis approach to antitrust market definition for labor markets (Simons 2018).

Azar, Marinescu, Steinbaum, and Taska (Azar et al. 2018) apply this logic to the labor market with a “hypothetical monopsonist” test, and, given the supply elasticities in Dube et al. 2018 and Webber 2015, conclude that an occupation-by-commuting-zone market definition is probably conservatively large and the right market definition in labor markets, maybe even at the level of a single firm. A similar argument is made by Naidu, Posner, and Weyl (2018). So while it is likely that workers outside the retail wireless sector might apply for jobs in that sector, employers nonetheless have a significant amount of unilateral power to set wages.

Our concentration data set was constructed by researchers at Change to Win as follows.6 They located retail outlets (by latitude/longitude coordinates) by scraping the websites of Sprint, T-Mobile, Boost Mobile (T-Mobile’s prepaid affiliate), Metro PCS (Sprint’s prepaid affiliate), and Verizon Wireless during the period from April 27, 2018, to June 10, 2018. AT&T’s store location data set was purchased from an aggregator and is current to August 1, 2018. Cricket stores (AT&T’s prepaid affiliate) were located via Google’s Places API service on May 1, 2018. Change to Win researchers were able to distinguish which of these stores are corporately owned and which are owned by authorized dealers.

They then imputed employment at each store by using average levels by company and store type, as shown in Table 1.

Table 1

They used various sources for these staffing levels, including press releases for store openings, disclosures by some of the authorized dealers, and internal estimates of AT&T’s staffing levels by the Communications Workers of America, which represents workers at those stores. For the merging parties Sprint and T-Mobile, the source is a third-party report about the merger written by New Street Research (Chaplin et al. 2018), which is corroborated by the companies’ own public interest filings with the Federal Communications Commission (FCC). Given store type and location, they were then able to tabulate employment concentration (measured by HHI) for each commuting zone. The predicted change in concentration due to the merger was calculated simply by computing new HHIs by adding the employment shares of Sprint and T-Mobile stores (plus their prepaid affiliates).

Predicting the change in concentration by combining the ex-ante market shares of the merging firms assumes that the merging parties would not eliminate employment as a result of this merger. If, instead, they eliminate jobs at one or both firms and their competitors maintain the same level of employment, that would reduce the ex-post concentration relative to our prediction. But job losses could also be an anti-competitive effect of the merger, including one way the merging parties could increase bargaining leverage over workers.

We should note that our exercise uses local employment, or, more particularly, store location (since we impute employment from nationwide averages by store type) to calculate labor market concentration. In the Benmelech, Bergman, and Kim 2018 and Rinz 2018 papers, the observable variable used to estimate concentration in the market is observed employment. In the Azar, Marinescu, and Steinbaum 2017 paper, the observable variable is job vacancies posted on a single online matching/recruiting website, CareerBuilder.

The maps in Figures C and D depict the predicted change in concentration in retail wireless labor markets due to the proposed merger of Sprint and T-Mobile, as well as the average post-merger HHI in these labor markets. According to the labor market definition we use here, literally all of the commuting zones in the United States that have wireless store locations would have a post-merger HHI in excess of the threshold for “highly concentrated”—2,500—under the Horizontal Merger Guidelines. And in nearly all of the commuting zones where both merging parties are active, the change in HHI due to the merger is in excess of 200, meaning that they would trigger enforcement concerns per the Horizontal Merger Guidelines. It should be emphasized that the labor markets that are not predicted to significantly increase concentration as a result of this merger are already monopsonized.

Figure C

Figure D

The studies we rely on all estimate earnings-concentration regression equations of the form

where w_it is the observed earnings in market i at time t, HHI_it is market-level concentration, X_it are market-level time-varying controls, α_i is a market-level fixed effect, γ_t represents time trends, and ε_it is the residual.7 The controls used in those studies differ depending on the data set: labor market tightness, for example, in the case of Azar, Marinescu, and Steinbaum 2017, is a way of controlling for the state of the within-market business cycle assumed to be caused by demand shocks.8

The analysis we conduct here is to ask how earnings would change given a change in concentration due to the merger, holding everything else constant.9 For that reason, we take the difference between two versions of the equation above, one for pre-merger and one for post-merger. That leaves us with

The ratio of HHIs is taken from the Change to Win 2018 estimates and the βs come from the three studies. We use them to return the log earnings ratio. We then exponentiate that to ascertain the percent change in earnings due to the counterfactual increase in concentration.

Specifically, we use a total of four estimates of β. From Azar, Marinescu, and Steinbaum 2017, we take specifications (3) and (6) from Table 2, Panel A. These include labor market tightness as well as fixed effects for commuting zones by occupations and commuting zones by quarter. Column (3) is an ordinary least squares (OLS) specification, and column (6) uses the instrumental variable from national changes in market-level firm counts. From Benmelech, Bergman, and Kim 2018, we use Table II, Panel B, column (6), which has both industry and year fixed effects, as well as labor productivity and other firm-level observables. From Rinz 2018, we use the specification in Table 7, column (4), which is similar to the instrumental variables one in Azar, Marinescu, and Steinbaum 2017, except that there is no tightness observable and the Rinz 2018 instrument uses concentration in other labor markets rather than the inverse of firm count in other labor markets. In each of these cases, the specification selected (see Table 2) is the one that (in our view) most closely matches the market definition used in the Change to Win 2018 concentration data.

Table 2

The histograms in Figure E illustrate the predicted worker-earnings effect of the proposed Sprint–T-Mobile merger in each of the four specifications we use. In commuting zones where no change in concentration takes place (because either one or both of the merging parties isn’t present), there is no change in earnings. The variation among the four specifications that arises in these figures is due to the different estimates of β. In the highest-magnitude specification, Azar, Marinescu, and Steinbaum (2017) IV, the percent change in earning is as large as 7 percent in the labor market with the largest change in concentration. In most labor markets affected by the merger, the change in earnings is between 1 and 3 percent.

Figure E

In order to calculate dollar values of these earnings reductions, we apply the pre-/post-merger earnings ratios to actual earnings data from the Quarterly Census of Employment and Wages (QCEW) for NAICS Industry 443142. For that level of aggregation, the QCEW reports earnings data at the county level where there are sufficient observations to clear anonymity concerns. From there, we aggregate to commuting zones. For commuting zones with no earnings data from its constituent counties, we use the state-level earnings for that industry.

Given baseline QCEW earnings, we calculate the dollar value of the percent change in average earnings by commuting zone in each of the four specifications. Those are displayed in Figure F as scatterplots and in Figures G and H as commuting-zone-level color-coded maps.

Figure F

Figure G

Figure H

Finally, we report the top 10 commuting zones ranked by the dollar value of the predicted earnings reductions for workers (shown in Table 3). The 10 most affected commuting zones in terms of weekly worker-earnings declines are identical across specifications, but the magnitude of the reduction differs. We report this to illustrate the extent of the harm to labor market competition done by the merger at its most severe. (See Appendix Tables 1 and 2 for the top 50 most affected commuting zones ranked by population and by the dollar value of the earnings decline.)

Table 3

Discussion

This counterfactual analysis of merger effects potentially suffers from the methodological flaw that it may be economically incoherent to treat market concentration as an independent variable, even if estimates of its effect on earnings using the three studies are successful in uncovering exogenous variation in concentration in the data sets examined. This concern would vitiate the ceteris paribus exercise on which these predictions rest: that one can take before-and-after earnings-concentration equations and vary concentration without affecting other elements of market structure that might also affect the wage. The reason why is that concentration may be (and probably is) co-determined with other causes of earnings, or any equilibrium observable. For example, the Azar, Marinescu, and Steinbaum 2017 specifications control for labor market tightness in order to filter out demand shocks to local labor markets that might put some firms out of business, thus increasing concentration, and also lower earnings. Benmelech, Bergman, and Kim (2018) control for plant-level productivity to take into account that employers that are more productive are likely to have both higher market share and pay higher wages. In both cases, the change in concentration would be an effect, rather than a cause, of the same factor that changed wages. The exercise here assumes that you can vary concentration in these markets while leaving tightness or firm productivity unaffected, which may or may not be true in reality, even if the earnings regressions were able to filter out the effect of local labor demand shocks or of productivity.

While we recognize that these studies are not the last word on the effect of labor market concentration on workers’ earnings, there are good reasons to believe in their empirical relevance to this merger review. Most importantly, they are able to survive the usual endogeneity critiques of concentration regressions: that concentration is caused by firm-specific productivity that also causes whatever outcome is being investigated, or that some set of shocks (for example, to labor demand) causes both variation in concentration and variation in earnings. As the previous paragraph implies, however, the critique is not simply that the regressions in the studies are endogenous, but also that it is economically incoherent to vary concentration out of sample and consider the effect of doing so on outcomes. Our response to this is simply that taking such a critique to its logical conclusion would make it difficult to perform any economic-policy-relevant counterfactual. Economists recognize that independent variables are co-determined all the time and nonetheless perform counterfactuals on them, hopefully using empirical estimates that most closely mirror the counterfactual exercise being undertaken in an experimental or quasi-experimental setup.

The typical approach to merger review in product markets is to weigh the increased prices due to increased market power deriving from a merger-induced change to market structure against merger “efficiencies” resulting from reductions in suppliers’ costs. Since we are concerned exactly with such “efficiencies”—namely, the exercise of anti-competitive monopsony power in labor markets—we eschew the latter consideration, for which there is in any case no obvious counterpart on the seller side of the wireless telecommunications market, and because, as the aforementioned paper by Glick (2018) points out, the “tradeoff” is incoherent in welfare terms in any case. What distinguishes our assessment of earnings reductions from the analysis typically employed by antitrust agencies and courts is our direct analysis of the market in which market power is (potentially) being exercised, versus, for example, making assumptions about the form of competition in that market and deriving a mathematical model from those assumptions, within which the merger can then be simulated—conditional on the correctness of those assumptions. Whether one is willing to make those assumptions depends on what is to be gained from them. Here, we would rather not commit ourselves to specifying ex ante how competition in labor markets works. We prefer simply to go to the data.

A further source of concern about the accuracy of our predictions is that if we have defined labor markets incorrectly, then there may be greater elasticity of labor supply in response to increased market concentration (as we measure it) than there was in the samples of markets used by the studies we rely on. Intuitively, if our market definition is narrow relative to those studies, then workers may move more easily to other employers should the merging parties or their competitors seek to reduce wages. Perhaps retail employees in mobile telecoms stores can easily find work in other types of stores, for example.

This concern should be mitigated, however, by the studies of low firm-specific labor supply elasticity cited above (Webber 2015; Dube et al. 2018). What they find is that even where workers could easily find another job—for example, in online labor markets where work is interchangeable and any job can be done from the same place—namely, one’s home—the elasticity of labor supply with respect to the wage is extremely low. What appears to outside observers as abundant job opportunities available to workers seems not to be the case for the workers themselves. Strengthening the case that a narrow market definition is appropriate is the fact that Sprint and T-Mobile have been known to use noncompete agreements to constrain the mobility of their workers (PerfectHandle 2015; Nevs0521 2006).

Finally, a more mundane objection to this exercise, but one worth making since it is more grounded in the empirics of prospective and retrospective merger analysis, is that concentration is highly variable even in well-defined antitrust markets, for reasons other than mergers. Ex-post examination of competitive effects of a merger often have trouble even detecting any merger effect on concentration outside of the most-affected markets, let alone the competitive effect of that change in concentration on outcomes (Steinbaum 2018). That is because the merger “signal” is often drowned out by the noise of other variation in concentration, from entry, exit, or changes in market shares arising from some other cause. In this paper’s exercise, the variation in concentration we use to predict earnings changes is calculated by simply combining market shares of the merging parties. But should the merger be consummated, the change in concentration that actually results from it would probably be different (and vary widely across markets) than the predicted change we use. That concern is prior to the concern about the out-of-sample robustness of the earnings regressions, and probably a more empirically relevant basis for doubting these predictions than the reluctance to make assumptions about the competitive structure of labor markets expressed above.

Conclusion and policy implications

In this paper, we predict that the merger of Sprint and T-Mobile would reduce labor market competition and therefore reduce earnings in the labor markets where the combined company hires workers to staff its retail stores. To do that, we employ earnings-concentration estimates from three recent studies, which use distinct data sets and specifications to estimate a negative relationship. Moreover, there is reason to believe this market, like most labor markets, is already monopsonized, and hence a profit-maximizing employer would be expected to use its increased monopsony power to reduce wages and worker benefits post-merger.

To the best of our knowledge, this is the first attempt to use the recent spate of labor market concentration studies in a prospective merger review in the United States. We think that analysis of competitive effects in labor markets should be incorporated into competition enforcement as a routine matter. This would require antitrust agencies to come up with principles for defining labor markets and assessing competition therein. It would also involve compulsory data collection from merging parties and other market participants with respect to firm- and establishment-level payroll data matched to employee characteristics (including labor market histories), insofar as these are known to the firms. It should encompass restrictions employers place on their workers, including noncompetes and mandatory arbitration clauses and class-action waivers. It should also extend to independent contractors and other non-employee workers, given their increasing importance to the business models of the economy’s most powerful actors. Given what we know about the high degree of interfirm and interestablishment disparities in pay, and what the research shows about the importance of internal labor markets, promotion structures, hiring policies, and outsourcing for labor market outcomes, highly granular data is necessary to effectively assess competition implications for labor markets. Furthermore, if such data collection were a routine (and compulsory) part of merger review, then we would not need to rely on out-of-sample predictions of earnings effects such as the one undertaken in this paper; instead, we could look at wage and other labor data connected directly to the merging parties, as employers.

The potential for anti-competitive effects of mergers in labor markets implicates larger issues of antitrust enforcement beyond expanding merger review to consider labor markets. Under the consumer welfare standard, when evaluating the potential for the anti-competitive exercise of monopoly power, enforcers weigh harm to consumers against “efficiencies” in the form of lower costs of production. If monopsony power is endemic in the economy, then such a comparison is incoherent in welfare economics terms because the profits of incumbents due to anti-competitive wage reductions are not equivalent in welfare terms to consumer surplus. This scenario points to the inadequacy of the consumer welfare standard to antitrust enforcement given realistic economic assumptions.

For that reason, we have proposed the Effective Competition Standard (Steinbaum and Stucke 2018), which, if enacted, would alter the Sprint–T-Mobile merger review in three respects. First of all, it shifts the burden of proof in any merger review to the merging parties, to prove their transaction would not harm competition. Second, it mandates that antitrust enforcers look more often upstream for anti-competitive effects, including in labor markets—mitigating the neglect of upstream harm to competition during the consumer welfare standard era. Finally, it establishes a right of market access for upstream suppliers, which, in this case, would include content creators who use wireless technology to reach customers. They would have the right to do so without exclusion or discrimination, which in turn places restrictions on the autonomy of powerful telecoms distributors like a combined Sprint–T-Mobile to extract a toll or to treat their customers or affiliates preferentially. If the merger threatened that right of market access, that would be grounds for preventing it.

This merger is proposed in a market where product market competition has been virtually eliminated, by both horizontal and vertical mergers and through the repeal of regulations—the 2015 Open Internet Order—designed to preserve competition in a sector in which incentives for discrimination and exclusion are significant. The aim of the Telecommunications Act of 1996—to introduce competition as an alternative to the heavy-handed regulation of the regime established by the Communications Act of 1934 and amendments—has manifestly failed. Instead, we now have the worst of both worlds: private rather than public regulation; discrimination and exclusion among suppliers, workers, and customers; and the extremely high profits that result from such a business model. Moreover, the labor markets where telecoms companies hire their workers are already monopsonized, meaning that increased market power on the part of employers would likely cause employment loss and wage declines. It is time for competition and regulatory authorities to take a new look at the rules governing the way telecoms are currently run in this country, including the antitrust enforcement approach that has allowed telecoms companies to consolidate to the point that they threaten overall economic well-being.

Acknowledgments

The authors, the Economic Policy Institute, and the Roosevelt Institute thank the Communications Workers of America for its support for this project. The report reflects the views of the authors but was reviewed by the CWA prior to publication.

About the authors

Adil Abdela is a Research Associate at the Roosevelt Institute.

Marshall Steinbaum is Research Director and a Fellow at the Roosevelt Institute.

Appendix

Appendix Table 1

Appendix Table 2

Endnotes

1. The new findings we put to use in this paper on monopsony power in labor markets return to the roots of an old debate about whether individual employers have the power to set wages (which is how this paper defines “monopsony”). In recent decades, economists have grounded their theories as to why individual employers have the power to set wages in labor market imperfections that impair worker mobility even when many employers might be active in a given market (Manning 2003, 2011). The three papers we rely on for the predictions made in this paper resurrect arguments in an older literature—that employer power to set wages might also be caused by outright concentration, i.e., the existence of few employers in a given labor market, which means that workers cannot obtain outside job offers because there aren’t any employers to give job offers (Robinson 1933, for example). We view the two theories as consistent and mutually reinforcing, with implications for competition policy that are considerable.

2. The Herfindahl-Hirschman Index is computed by summing the squares of each firm’s market share, and then multiplying the resulting sum by 10,000. It thus up-weights large market shares in the computation of overall concentration in a market.

3. According to the Horizontal Merger Guidelines, the threshold for a highly concentrated market is 2500, and the threshold for a merger that threatens to reduce competition is one that would increase concentration by 200 HHI points.

4. 374 U.S. 321.

5. The word “monopsony” formally refers to a single employer as the sole purchaser of labor in a market, but the word has a wider application in this paper and in the economics literature more generally. In contemporary economics, monopsony power refers to inelastic firm-level labor supply, giving employers some unilateral discretion to set wages. Alternatively, from the worker’s point of view, monopsony refers to wages that are less than the marginal product of labor. There are many potential reasons why labor markets might be monopsonized, including a small number of employers, search-and-matching frictions, asymmetric information, or discrimination.

6. Change to Win’s research indicates that the Sprint–T-Mobile merger is likely to reduce employment by the merging parties and their competitors. The analysis in this EPI paper assumes no change in employment as a result of the merger. The analysis in this paper could be seen, for that reason, as a scenario under which the monopsony power that results from the merger is used solely to depress wages. In reality, it may reduce both wages and employment.

7. Benmelech, Bergman, and Kim (2018) use a log-level, rather than a log–log, specification for the earnings-concentration regression equation. This difference is reflected in the merger counterfactual calculations reported below.

8. Benmelech, Bergman, and Kim (2018) observe unionization rates at firms in their data, which they use as another control. They find that unionization mitigates the earnings-reducing effect of concentration, a finding that is tentatively corroborated by Kwan and Liu (2018). In fact, the Benmelech, Bergman, and Kim 2018 paper posits that one of the reasons labor market concentration exerts a macroeconomically significant negative impact on wages now, versus in the past, is not only that labor markets have become more concentrated, but also that concentration matters more for wages since unionization rates have declined. For the retail wireless labor markets we study, Change to Win (2018) estimates that the unionization rate is approximately 9 percent, almost entirely at corporately owned stores of AT&T Mobility LLC (the AT&T subsidiary that provides wireless services).

9. We return to the validity of this ceteris paribus exercise for concentration at the end of this section.

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It is nevertheless important to note that with Republicans in control of the Senate and the White House, it is unlikely that policies that promote a just economy for working people will become law. Still, House Democrats have the opportunity to advance long overdue reforms. It is critical that they focus on an agenda that serves our nation’s workers. This must include House Democrats working to raise workers’ wages, restore workers’ access to justice on the job, and promote workers’ right to collectively bargain.

Workers deserve a fair minimum wage. At $7.25 per hour, the federal minimum wage is now more than 25 percent below where it was in real terms half a century ago. House Democrats must advance legislation to raise the federal minimum wage to $15 per hour by 2024, indexing it to the national median wage thereafter, and phasing out the tipped minimum wage and other subminimum wages. Given inflation expectations, $15 in 2024 would be around $13.00 in 2018 dollars, an appropriate level for the federal floor. The Raise the Wage Act introduced this Congress included all of these reforms. The House must work to pass similar legislation in the new Congress.

Workers should not be forced to sign away their rights as a condition of employment. The use of mandatory arbitration and collective and class action waivers—under which workers are forced to handle workplace disputes as individuals through arbitration, rather than being able to resolve these matters together in court—makes it more difficult for workers to enforce their rights. These agreements bar access to the courts for all types of employment-related claims, including those based on the Fair Labor Standards Act, Title VII of the Civil Rights Act, and the Family Medical Leave Act. This means that a worker who is not paid fairly, discriminated against, or sexually harassed, is forced into a process that overwhelmingly favors the employer—and forced to manage this process alone, even though these issues are rarely confined to one single worker. Congress must act to ban mandatory arbitration agreements and class and collective action waivers. The Restoring Justice for Workers Act introduced this Congress includes all of these reforms. The House should work to pass this important reform in the new Congress.

Workers must have strong collective bargaining rights. A recent poll found that 60 percent of adults have a favorable view of labor unions. However, as of 2017, only 10.7 percent of wage and salary workers were union members. This disconnect is the result of decades of fierce opposition to unions and collective bargaining, with employers exploiting loopholes in outdated labor law to defeat workers’ organizing efforts, while corporate lobbyists have blocked attempts at reform. We know unions are a significant force for a fair economy by examining the impact of their decline since the 1970s. As unions have declined, inequality between middle- and high-wage workers has grown. Congress must work to revitalize workers’ right to join a union and collectively bargain. The Workers’ Freedom to Negotiate Act introduced this Congress includes many critical reforms to our nation’s labor law that would help to restore collective bargaining rights and provide workers a meaningful voice in the workplace. The House should consider this legislation in the new Congress.

The current legal and political framework favors corporate interests dedicated to rolling back worker protections and advancing business practices that leave fewer and fewer workers covered by existing laws. Democratic leadership in the House has the chance to show our nation’s workers that they will fight to change this rigged system and promote policies that work for our nation’s workers. Legislation has already been developed that would provide important reforms. A Democratic majority in the House can and should advance an agenda that includes these legislative initiatives and use their power to ensure that our national debate involves workers’ voices.

Kelly’s unfathomable severance package isn’t the only thing separating her from regular working people. She actually may have a say in her noncompete clause. According to The Hollywood Reporter, her legal representation is “attempting to keep her noncompete clause as short as possible. Six months is the standard in the television news industry.”

Nearly one in five U.S. workers are bound by noncompete agreements, which block them from working for a competitor for a set period of time if they leave their current job. That’s nearly 30 million people who have essentially lost their full right to leave their jobs. And it’s not just highly paid workers who are required to sign them—14.3 percent of workers without a four-year college degree and 13.5 percent of workers earning up to $40,000 a year have noncompetes.

Noncompetes are a big problem. If you are a typical worker and you are not in a union, one of the most important points of leverage you have to negotiate for a raise or fight back against abuse is the fact that you can quit and work somewhere else. A noncompete agreement weakens your power: you have to stay with your employer because you can’t seek or accept a better-paying job with a competitor.

Most ordinary people don’t have the capacity to hire a high-priced litigator to protect their interests when it comes to noncompete clauses. Many people don’t even know that they signed a noncompete clause—or understand what it means.

There is no justifiable reason that a sandwich maker should be prohibited from working for a competing establishment for two years after leaving his job at a sandwich shop. But that is exactly what was happening with employees of Jimmy John’s, until the New York attorney general’s office took action. Reporters and factory managers—along with workers at doggy day care and grooming services, summer camps, and warehouses—have also had to sign noncompetes.

The proliferation of noncompetes is bad for America. Noncompetes contribute to stagnating wages and inequality. They represent just one more way the rules governing work in this country are rigged against working people from their first day on the job.

What can we do about this? The White House could call attention to the issue, as the Obama administration did in its waning months. State attorneys general can challenge them. And policymakers can work to restrict or ban them. EPI’s First Day Fairness Agenda calls for banning noncompete clauses, with very limited carveouts (to cover genuine trade secrets). The First Day Fairness Agenda should be required reading for anyone who says they care about lifting wages and ending inequality.

Megyn Kelly will do just fine. But ordinary workers are at risk. The freedom to change jobs is crucial to workers’ advancement. It’s time for us to protect that freedom for those who don’t have $69 million payouts.

The rules governing work in this country are rigged against working people from their first day on the job. The current legal and political framework favors corporate interests dedicated to rolling back worker protections and advancing business practices that leave fewer and fewer workers covered by existing laws. Those workers who remain covered by these protections are often required to sign away their labor and employment rights as a condition of employment. And, where workers do have protections on the job, the agencies responsible for enforcement lack the resources necessary to ensure that employers are playing by the rules. Most damaging to workers is the unrelenting attack on their ability to act collectively to improve their wages and working conditions. This assault on the right to collective action has stripped workers of meaningful leverage to change the system to ensure that working people have a voice in the workplace.

This rigged system has helped produce the inequality that characterizes the United States economy. For most of the last four decades, most working people in this country have seen their wages stagnate. However, those who already had very high wages are the exception—their wages have grown impressively. From 1979 to 2016, the wages of the top 1 percent grew nearly 150 percent, whereas the wages of the bottom 90 percent combined grew just 21.3 percent, roughly one-seventh as fast.1 This means there was an enormous upward redistribution of earnings from the bottom 90 percent to those at the top.

The erosion of workers’ bargaining power

There are many factors contributing to this economic inequality; however, the common thread that binds almost all of them is the erosion of the bargaining power of low- and middle-wage workers. This suppression of workers’ bargaining power has been so profound that even today’s 3.9 percent unemployment rate—quite low compared with historical averages—has not been enough to spur meaningful wage growth for most workers.

The situation of weak economic leverage for most workers is not the “unfortunate-but-inevitable” result of natural trends in technology and global integration; it is instead the product of decades of attacks on workers’ leverage. The laws designed to protect working people have been largely neglected by policymakers since they were passed—over 75 years ago in the case of our foundational statutes like the National Labor Relations Act (NLRA) and the Fair Labor Standards Act (FLSA). Meanwhile, corporate interests have succeeded in getting policymakers to roll back key worker protections, and they have advanced business practices that ensure that fewer and fewer workers benefit from existing laws. The result of these attacks is that low- and middle-wage workers have little bargaining power to demand their fair share of the growing economic pie.

What is ‘First Day Fairness’?

First Day Fairness is the right of all workers to a fair system of work from their first day on the job. U.S. workers are essential contributors to economic growth in the U.S. and they deserve a fair share of that growth and a fair say in their working conditions. First Day Fairness requires a rebalancing of our current system to ensure that workers’ interests and concerns are served. It means that from the first day on the job working people can have a union in order to collectively bargain for better wages and working conditions. It means that workers know from the start how much they will be paid and when they will be paid; they know who their legal employer is; they are in a safe workplace; they have a predictable schedule and access to paid sick time; they can go to court if they are discriminated against; and they are not afraid of retaliation if they report issues at work. It also means that they have confidence that the government will enforce their workplace protections.

A multifront assault on workers’ rights requires a multifaceted response

There is an understandable desire among those seeking shared prosperity to agree on and advance one simple, bold, “big fix” to all our economic woes. What is the one way to reverse decades of widening economic inequality? What is the one way to restore workers’ rights and leverage in the workplace? What is the one way to close race and gender economic gaps?

These questions are spurring the development of many innovative policy reforms that we support. However, there is no single reform that can reverse the trends that have done so much to harm working people. Multiple reforms are needed to meaningfully address the decades-long campaign to disempower America’s workers. That campaign has been waged on multiple fronts, impacting federal and state policies, our judicial system, and our democracy itself. A systematic, wide-ranging policy agenda to shift economic leverage away from workers brought us into this current situation, and only an equally deliberate and expansive set of pro-worker policies will take us out.

Making the workplace fair for women and people of color

Women and workers of color suffer not only from the broad loss of bargaining power affecting all working people over the last four decades; they also face discrimination, occupational segregation, and other inequities related to racial and gender biases, which diminish their leverage even further. Studies show that women workers tend to be paid less than similar male workers, and black and Hispanic workers tend to be paid less than similar white workers.2 Women and racial and ethnic minority workers are also more likely to be concentrated in low-wage jobs with few benefits.3

As a result, people of color and women stand to gain more from policies that establish and maintain basic fairness from the first day on the job. Stronger minimum wages and other labor standards disproportionately affect women and racial and ethnic minorities. Unions help raise women’s pay, and help to close racial and ethnic wage gaps.4 Strengthening fair employment laws and their enforcement will provide crucial leverage for workers who are discriminated against on the basis of gender, race, and ethnicity.

The ‘First Day Fairness’ agenda

This agenda outlines a series of initial reforms focused on labor and employment policies, one of EPI’s core areas of focus for generating a fairer economy. These policies would ensure that the protections promised in our basic labor laws decades ago have been updated to meet the needs of workers in a modern context.

The best guarantee for a fair first day for workers is union representation and a collective bargaining agreement; consequently, much of what we advocate for in this agenda is designed to reverse decades of legal hostility aimed at unions and to boost union coverage. As a complement to these policies, we also propose a series of employment law reforms that will restore at least some of the lost bargaining power of workers.

Together these policies will help to unrig the system and ensure a fair first day for working people.

We must strengthen collective bargaining and grow workers’ ability to join together to increase their power

A recent poll found that 60 percent of adults have a favorable view of labor unions. However, as of 2017, only 10.7 percent of wage and salary workers were union members.5 This disconnect is the result of decades of fierce opposition to unions and collective bargaining, with employers exploiting loopholes in outdated labor law to defeat workers’ organizing efforts, while corporate lobbyists have blocked attempts at reform. We know unions are a significant force for a fair economy by examining the impact of their decline since the 1970s. As unions have declined, inequality between middle- and high-wage workers has grown: Figure A shows that as union membership has dropped, the top 10 percent’s share of overall income has risen. The erosion of union coverage has also meant the erosion of the significant boost unions provide to the earnings of black and Hispanic workers and women—a boost that occurs directly through collective bargaining but also by helping combat discrimination through correcting for salary discrepancies and establishing clear and transparent terms for advancement.6

Figure A

The following reforms aim to strengthen collective bargaining and increase worker power.

We must ensure basic job quality

Labor and employment standards set the minimum obligations that employers have to their workers. In recent decades there has been a concerted, cynical effort by corporate interests to convince lawmakers that these standards strangle economic growth and cost jobs. As a result, lawmakers have allowed these standards to erode dramatically—both through a failure to update existing standards so that they continue to provide a robust floor for job quality and through a failure to implement new standards to counteract evolving employer practices that wrest leverage from workers. As mentioned above, this erosion disproportionately impacts women and racial and ethnic minorities, who are more concentrated in low-wage jobs with few benefits. Further, this erosion harms collective bargaining efforts among unionized workers because it lowers the floor from which bargaining takes place.

We must protect workers from being forced to sign away their rights

In today’s labor market, more and more workers are being told by potential employers that if they want a job, they have to sign away important rights that help level the playing field between workers and employers. The proliferating employer practice of requiring workers to waive their rights as a condition of employment shifts even more economic leverage from workers to employers.

We must boost enforcement of all labor and employment standards

Employers steal billions from workers’ paychecks each year by misclassifying workers, paying less than legally mandated minimums, failing to pay for all hours worked, stealing tips from tipped workers, and not paying overtime premiums.29 Further, many employers fail to provide safe work environments: more than 5,000 fatal injuries and nearly 3 million nonfatal injuries and illnesses occur in the workplace each year.30 Additionally, discriminatory hiring, firing, harassment, promotions, and pay systematically disadvantage racial and ethnic minorities, women, people with disabilities, LGBTQ workers, and workers from other marginalized groups.

Endnotes

1. Lawrence Mishel and Julia Wolfe, “Wages Rose for the Bottom 90 Percent in 2016 as Those for Top 1 Percent Fell,” Working Economics (Economic Policy Institute blog), October 31, 2017.

2. Elise Gould, Jessica Schieder, and Kathleen Geier, What Is the Gender Pay Gap and Is It Real? Economic Policy Institute, October 2016; Economic Policy Institute, State of Working America Data Library, “Gender wage gap,” “Black–white wage gap,” and “Hispanic–white wage gap,” 2018.

3. Economic Policy Institute, State of Working America Data Library, “Wages by percentile,” “Health insurance coverage,” and “Pension coverage,” 2018.

4. Josh Bivens et al., How Today’s Unions Help Working People: Giving Workers the Power to Improve Their Jobs and Unrig the Economy, Economic Policy Institute, August 24, 2017.

5. Poll results come from Shiva Maniam, “Most Americans See Labor Unions, Corporations Favorably,” Fact Tank (Pew Research Center), January 30, 2017. The union membership rate comes from Bureau of Labor Statistics, “Union Membership (Annual) News Release,” January 19, 2018.

6. Josh Bivens et al., How Today’s Unions Help Working People: Giving Workers the Power to Improve Their Jobs and Unrig the Economy, Economic Policy Institute, August 24, 2017.

7. Josh Bivens et al., How Today’s Unions Help Working People: Giving Workers the Power to Improve Their Jobs and Unrig the Economy, Economic Policy Institute, August 24, 2017.

8. Kate Bronfenbrenner, No Holds Barred: The Intensification of Employer Opposition to Organizing, Economic Policy Institute, May 2009. See also John Schmitt and Ben Zipperer, Dropping the Ax: Illegal Firings during Union Election Campaigns, Center for Economic and Policy Research (CEPR), March 2009.

9. Kate Bronfenbrenner, No Holds Barred: The Intensification of Employer Opposition to Organizing, Economic Policy Institute, May 2009. See also Figure 1 of John-Paul Ferguson, “The Eyes of the Needles: A Sequential Model of Union Organizing Drives, 1999–2004.” Industrial and Labor Relations Review 62, no. 1 (October 2008): 1–18.

10. In this process, union and employer work with a mediator to arrive at contract terms; if they are unable to do so before the established deadline (e.g., within one year of the date the union is recognized), or if at any time in the process the mediator judges that one side is not acting in good faith, the contract terms are determined through binding arbitration.

11. Janelle Jones and Heidi Shierholz, Right-to-Work Is Wrong for Missouri: A Breadth of National Evidence Shows Why Missouri Voters Should Reject RTW Law, Economic Policy Institute, July 10, 2018.

12. Data from the Bureau of Labor Statistics, Work Stoppages Program (WSP), public data series accessed August 15, 2018, through the WSP Databases.

13. David Cooper, Raising the Minimum Wage to $15 by 2024 Would Lift Wages for 41 Million American Workers, Economic Policy Institute, April 26, 2017.

14. H.R. 15, 115th Congress (2017).

15. EPI calculations based on the Congressional Budget Office’s 10-Year Economic Projections (published August 2018) of the Consumer Price Index (CPI-U).

16. Currently, 29 states and D.C. have a minimum wage higher than the federal minimum wage. In addition, 42 localities have adopted minimum wages above their state minimum wage. For more information about current minimum wage levels across the states, see EPI’s Minimum Wage Tracker (interactive map; last updated July 2018).

17. As an example, a worker earning these poverty-level wages can be classified as a “manager” and be required to work 60 hours per week without receiving any additional pay over the $455 weekly salary.

18. Celine McNicholas, Samantha Sanders, and Heidi Shierholz, What’s at Stake in the States if the 2016 Federal Raise to the Overtime Pay Threshold Is Not Preserved—and What States Can Do about It, Economic Policy Institute, November 2017.

19. Celine McNicholas, Samantha Sanders, and Heidi Shierholz, What’s at Stake in the States if the 2016 Federal Raise to the Overtime Pay Threshold Is Not Preserved—and What States Can Do about It, Economic Policy Institute, November 2017.

20. Center for Popular Democracy, A Fair Workweek: Good for Businesses and Workers (fact sheet), March 2018; Lonnie Golden, Still Falling Short on Hours and Pay: Part-Time Work Becoming New Normal, Economic Policy Institute, December 5, 2016.

21. For examples of “fair workweek” laws passed at the state and local levels, see Julia Wolfe, Janelle Jones, and David Cooper, ‘Fair Workweek’ Laws Help More Than 1.8 Million Workers: Laws Promote Workplace Flexibility and Protect against Unfair Scheduling Practices, Economic Policy Institute, July 19, 2018.

22. Bureau of Labor Statistics, “Table 32. Leave Benefits: Access, Private Industry Workers, March 2017,” National Compensation Survey – Benefits.

23. Elise Gould and Jessica Schieder, Work Sick or Lose Pay? The High Cost of Being Sick When You Don’t Get Paid Sick Days, Economic Policy Institute, June 28, 2017.

24. David Weil, The Fissured Workplace: Why Work Became So Bad and What Can Be Done to Improve It (Cambridge, Mass.: Harvard Univ. Press, 2014).

25. Celine McNicholas and Marni von Wilpert, The Joint Employer Standard and the National Labor Relations Board: What Is at Stake for Workers?, Economic Policy Institute, May 2017.

26. Alexander J.S. Colvin, The Growing Use of Mandatory Arbitration: Access to the Courts Is Now Barred for More Than 60 Million American Workers, Economic Policy Institute, September 27, 2017.

27. Office of Economic Policy, U.S. Department of the Treasury, Non-Compete Contracts: Economic Effects and Policy Implications, March 2016.

28. Evan Starr, J.J. Prescott, and Norman Bishara, “Noncompetes in the U.S. Labor Force,” University of Michigan Law School, Law and Economics Research Paper Series no. 18-013, May 2018. http://dx.doi.org/10.2139/ssrn.2625714.

29. Celine McNicholas, Zane Mokhiber, and Adam Chaikof. 2017. Two Billion Dollars in Stolen Wages Were Recovered for Workers in 2015 and 2016—and That’s Just a Drop in the Bucket. Economic Policy Institute, December 2017.

30. Data are 2016 data from the Bureau of Labor Statistics, Injuries, Illnesses, and Fatalities (IIF) program, public data series accessed August 15, 2018, through the IIF Databases.

31. In 2017, the Wage and Hour Division (WHD) of the U.S. Department of Labor employed 912 investigators around the country to enforce wage and hour laws like the minimum wage, overtime protections, and the job protections of the Family and Medical Leave Act (FMLA) in 9.85 million covered business establishments. That means that even if each WHD investigator went to one establishment every day (taking no days off except for weekends and federal holidays), it would still take well over 40 years for them to visit all covered establishments. (Data on the number of investigators obtained by phone from the U.S. Department of Labor, Wage and Hour Division, July 16, 2018. Data on the number of covered establishments are 2017 data from the Bureau of Labor Statistics, Quarterly Census of Employment and Wages (BLS-QCEW), public data series accessed August 14, 2018, through the QCEW databases and through series reports.)