American Business Law Journal, 2020
49 Pages Posted: 8 May 2020 Last revised: 24 Feb 2022
Date Written: April 14, 2020
Scholars, antitrust agencies, and policymakers have historically paid little attention to anticompetitive practices in labor markets. The misconception was that antitrust law is meant to govern conventional markets in which goods and services traded rather than labor markets. In fact, the labor market’s greatest threat was thought to come from workers who, as the fear went, could inflate their wages by forming a labor union. For these reasons, employers have largely avoided scrutiny when entering no-poaching agreements or otherwise impairing competition. This was until evidence recently surfaced about the prevalence of labor cartels in minimum wage markets. It seems that observers were dismissive of labor cartels so long as employers were colluding to protect trade secrets and innovation programs. But the reality is that employers enter anticompetitive agreements — de facto or expressly — in all types of industries with little fear of antitrust review. As a result, critics contend that collusion has caused wages to stagnate over the past few decades despite climbing productivity.
Several issues explain why labor cartels have evaded antitrust enforcement. The primary tension involves antitrust’s purpose, which is to promote “consumer welfare.” To identify whether conduct eroded consumer welfare, courts tend to scrutinize whether prices increased. But here, lessening wages can enable firms to sell goods at cheaper prices, benefiting consumers. Another issue is that the typical restraint affects only a smattering of workers instead of lessening wages throughout the greater market. The obstacle, as one opinion noted, is that the Sherman Act is “designed to redress the injuries of consumers where an entire market is unlawfully constrained.” But some courts have condemned labor cartels with identical facts, creating unpredictable and unprincipled results.
This Article uses empirical analyses and an original data set to show that antitrust should promote labor’s welfare as it does consumer welfare, arguing that enforcement must condemn labor cartels as per se illegal. The research finds that labor cartels are more pernicious than restraints in product markets, as employers can lessen wages with less effort than in product markets. Antitrust should even proscribe no-poaching agreements formed for a legitimate purpose (e.g., to protect trade secrets) since employers could have achieved the same goals using less coercive means; the non-compete agreement, at least, provides labor with a semblance of notice and bargaining power without drawing antitrust scrutiny. The prohibition of labor cartels would thus promote competition and consumer welfare, especially in minimum wage labor markets.
Keywords: Antitrust, monopsony, labor, employment, non-compete, restrictive covenant, cartel, collusion
Suggested Citation: Suggested Citation