In a new paper, EPI Research Director Josh Bivens, Distinguished Fellow Lawrence Mishel, and Vice President John Schmitt examine emerging literature on the effect of labor and product market concentration—monopsony and monopoly—on wages and inequality. They conclude that this literature establishes that market concentration has increased over time, and that market concentration does hold down wages, but argue that rising concentration by itself cannot explain a significant portion of key trends in American wages over recent decades.

“Introducing the role of market power in setting wages is a welcome development,” said Bivens. “But while employer power clearly exists and holds down wages, we think that the more radical change in American labor markets in recent decades was the collapse of worker’s power. In short, this new literature adds to the list of tools that policymakers should use to address wage growth, but it certainly shouldn’t displace perennial tools like higher minimum wages or encouraging collective bargaining.”

The authors translate the findings of several notable studies on market concentration into the implied effect on American wages. The literature implies that labor market concentration (or growing monopsony power) could have reduced wage growth by roughly 0.03 percent annually between 1979 and 2014, which would explain about 3.5 percent of the total divergence between the median worker’s hourly pay and economy-wide productivity over this same time period. Meanwhile, product market concentration (or growing monopoly power) reduced wages by 0.08 percent over the same span, or less than 10 percent of the total divergence between the median worker’s pay and economy-wide productivity.

“The emerging literature is right to see market concentration as harmful to wages, and policymakers should explore relevant remedies such as antitrust laws,” said Mishel, “But we see no evidence that rising concentration explains the past 40 years of wage trends. Fighting market concentration is not a silver bullet—we should look to a host of policies to boost wages and fight inequality.”

The authors argue that economists and policymakers should certainly continue to assess market concentration and its policy implications, but must keep a broader focus, examining all forms of market power in attempts to explain and reverse wage stagnation and inequality. Market concentration, the authors argue, is not the only source of power—even employer power—in markets. And while growing employer power is concerning, even unchanged employer power can play a role in growing wage suppression and inequality if it is accompanied by a collapse of workers’ market power, a collapse that has been largely driven by the intentional erosion of institutions and standards—such as strong minimum wages and collective bargaining—that boost the bargaining power of typical workers.