Building Local Power

Three of our researchers (Christopher Mitchell, John Farrell, & Brenda Platt) sit down together to discuss how small cities across America are innovating in the ways they are supporting their local economies. Mitchell discusses this innovation in Idaho; Farrell details the discussions in Decorah, Iowa; and Platt portrays many different home composting programs.… Read More

Sarita Gupta of Jobs With Justice joins us to discuss the state of labor rights in the "gig economy" and how the care sector presents a huge opportunity to change both work and aging. … Read More

L-R: Christopher Mitchell, Stacy Mitchell, and John Farrell

If you’ve been a fan of our site for any amount of time, you might have noticed that we feature a number of policies and projects from Vermont as paradigms of local self-reliance. That’s why we had three of our policy experts sit down and discuss what is going right in the Green Mountain State.

How did Vermont come to have more small businesses and fewer big-box stores per capita than any other state? Why does it have a much higher rate of rooftop solar installation than many sunnier regions? And how has Vermont become a leader in developing community-based Internet access solutions?

In this episode of the Building Local Power podcast, host and Community Broadband Networks initiative director Christopher Mitchell sits down with co-director and Community-Scaled Economy initiative director Stacy Mitchell and Energy Democracy initiative director John Farrell to answer those questions.

The three all note the high level of civic engagement in Vermont and the way that it contributes to an environment conducive to strong local economies.

Throughout the conversation, Stacy, John, and Chris all mention research and reporting on the exciting ways that Vermont is enabling local self-reliance:

The group recommend a number of items for our audience, including:

But today, we’re gonna build on John’s enthusiasm and excitement for cat videos, also for the internet now being a force for good. We want to talk about a state that’s doing some really great things on policy that’s actually helping local communities to maximize their local resources to be really great places to live in.

This is the first of a few shows we’d like to do in which we pick a geography and we talk about a number of policies that they’ve done over the years. And to just foreshadow that, we know that we want to talk about North Dakota because they have a number of really innovative policies that were really bringing benefits to them long before all of the fracking and the oil boom. I think sometimes people misidentify a source of their strong economy as just the oil boom.

But we’re going to talk about three issues, one from each of our programs, and I think Stacy, yours is the one that really helps set a frame overall. What is Vermont doing to make sure that local businesses can really do well?

And so Vermont adopted this policy, and it is a policy that requires anything large, so if you want to build a big housing subdivision or a large store or shopping center, anything that’s over a certain size, you not only have to go through the local planning process in that particular community, but you also have to go through a regional review where all of the communities in that region review the project recognizing that because it’s large, it’s gonna have this effect on the whole region.

What’s great about it is … and I should say the review includes looking at things like how much tax revenue will this generate versus how much will it cost us to provide public services, what are the benefits to the community that come from this, what are the economic benefits versus some of the economic costs, that kind of thing, as well as the environmental impact of a project.

And what’s nice about it is that it means that developers, and I’m thinking particularly of big box and shopping mall developers, they can’t come into a region and say to a community, “Hey, we want to build this big store and if you don’t accept us on our terms, exactly what we want to do, we’re just gonna build it in the next town over,” and they can pit towns against one another. Vermont doesn’t have that problem.

We see a lot of development in other places where yeah, this is good for this particular suburb, but it hurts the region as a whole, and this makes communities think, as I said, collectively together about what’s really in their best interest, and it gives them leverage, ’cause not only can they say no, but they can also say to the developer, “Here are the terms. Here are the things you need to change about this project to make it work.” And they have the power to do that in a way that’s very difficult for an individual community to do.

And now in most regions of the country, if you say that to Wal-Mart, they say, “No, sorry. We’re just gonna build in the next town over, and because we’re gonna build such a huge store, it’s gonna have this effect that’s gonna be for miles and miles and miles, and it’s still gonna kill off your local businesses even if you don’t take us directly.”

And so it gives communities a lot of leverage, and the result in Vermont is that Wal-Mart has only five stores in the state, and three of those stores are in small existing buildings downtown. Only two of them are sort of the more traditional kind of Wal-Mart, and even those are smaller than usual that you see in other parts of the country. This is true for all the other big box stores. They’re in Vermont, but not in a way that just totally overwhelms the local economy. So they’re a part of it, but they’re not this dominant force the way they are elsewhere.

One effect of that is that Vermont has more small businesses per capita than any other state in the country.

There are a lot of different regulations and rules in Vermont, but what I think is interesting is that the kinds of policies that they’ve seemed to have adopted, at least the evidence of the fact that they have lots of small businesses and really have a growing number of small businesses and a very healthy local economy in that regard, the evidence is that their policies have been thoughtful and that even if there’s a bit of a hassle that’s an inevitable part of that for local business owners, what they succeed in preserving is an environment that’s actually very conducive for local businesses.

I decided to spend a little bit of time actually dissecting that, and so I created some maps of the U.S. that show number of small businesses per capita, and also the change in small businesses, so looking at over the last 10 years which states are really seeing growth in small businesses. It was fascinating ’cause it was almost in many ways a reverse … like Texas is one of the … It’s really right at the bottom in terms of being small business friendly when you look at, well how many small businesses are actually there? And Vermont’s at the top.

So it suggests that regulation isn’t so simple, that the solution isn’t about more or less regulation, but really what kinds of rules are you writing and are you writing rules that actually create, in the case of land use rules, a built environment that’s very conducive to local entrepreneurs or are you by having no rules creating a very sort of sprawling environment that for a lot of reasons works better for big national chains. It’s an environment that local entrepreneurs have a very hard time getting a foothold in. I think you really see that when you actually look at the hard numbers.

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But speaking about these rankings, John, tell us what we should be looking at in terms of an important ranking coming out of Vermont with clean energy.

In Burlington, which is of course up near the northern end of Vermont and the northern part of the country, ranks 11th in the United States in solar PV capacity per capita, which means that it’s one of the solar hotspots in the country despite having one of the weaker solar resources.

I think the lesson with Burlington is similar to Stacy’s experience with retail development, which is that it’s really policy that helps set up the appropriate environment for the growth of local clean energy, and not as much the quality of the resource.

There’s a couple things. One is that the state requires that utilities that procure renewable energy like solar do sell from small scale sources, and there are about 20 states that have similar policies across the country.

A second key piece is having what’s called shared renewable energy, or community renewable energy, which is to say that for folks who don’t have a sunny rooftop, that there’s a way for them to invest in a solar array maybe down the block or maybe on a church nearby or in an open field near town to get a share of their electricity from solar without having to buy it themselves.

So those are kind of the policies that support that kind of distributed solar development that allow Burlington to develop a lot of solar in a way that other cities might not, despite not having as sunny a locale as other places that are very successful with solar.

I think there’s two other things going for Vermont that are not happening in other states. One is that they have a presumptive approval for small scale solar that they don’t have in other states. So if you put a solar array on your roof, normally you would have to go through a regulatory process to get approval to connect that to the grid, and what Vermont has adopted state-wide is a policy called presumptive approval, which means that if nobody objects, like the utility company or anybody else within 10 days, then that project is approved and you get to install it and connect it to the grid. And so that really helps streamline the process.

The second thing that’s going on in Vermont is that in many states, in 30 different states like Vermont, utilities are monopoly corporations, and so they have a reserved service territory, a reserved population that can only buy power from them, and it’s the only state that has a company, Green Mountain Power, that is a benefit corporation. It’s registered as a benefit corporation, and I think that really changes the perspective and the service that you get from that kind of company that can focus more on things that customers are interested in.

So if you think about Ben & Jerry’s, it’s about eating delicious ice cream, but that that money is going to other social goods. That’s the same idea here with the utility company is that they can think beyond the bottom line of its shareholders to the environmental benefits, to the benefits of the communities that they serve. And you definitely see that in the kinds of things they’re doing. They are increasing compensation for customers that have solar on their rooftop, when in other states those utility companies, same utility companies are fighting to reduce that compensation. They’ve mapped out their local grid system to make it easier for people to identify where they can install solar, and they’re also financing things for customers like batteries or cold climate heat pumps, ways for them to save energy or to become more resilient, and that the utility is helping provide to those folks that are helping them to pay for them over time.

And so I think that is both exciting that a utility company can come to that realization, but also a little frustrating when you realize there’s not necessarily anything that we can do from the outside to get other companies to do the same.

And yet I’m trying to figure out what lessons we could really draw for other states.

There are plenty of utilities in Vermont, other utilities, different kinds of utilities with different ownership structures as well as other utilities similar to Green Mountain Power that oppose a lot of the things that they’re doing, that don’t offer them to their customers, that have testified in front of public regulators against the kinds of things that Green Mountain Power is doing or the kinds of policies that they have favored to allow customers to produce more of their own energies.

So I think that offers a couple lessons. One is that it’s not necessarily something special to Vermont because these other utilities in Vermont are not doing these things, and so I don’t think it means that you have to be in a particular state, in a particular geography, or particular demographics in order to have this kind of customer focus. And in fact, there’s a lot of discussion about energy as a service instead of energy as a commodity in the electricity business, and there’s a lot of utilities out there, at least speaking from the top, like they care about this kind of thing, that they want to be customer focused.

But what we’ve seen is that when the rubber hits the road, when we get to where regulations are being set or when we’re at the legislature, those utilities are pretty consistently against the policies that would be considered customer-centric, like Green Mountain Power has supported.

I know that not everything turned out the way that folks hoped there, and I’m curious have they been able to make something of that anyway?

Later mayor … several years later, basically I would say destroyed the project. Others would say that Burlington Fiber had some problems already even before that relating to how it was built in a costly manner to provide incredible benefits, but in a way that would have been very difficult for it to become financially feasible even if it was well run.

So Burlington actually went from being in some ways a role model to being a strong disappointment for those of us that would like to see municipal networks, although within Burlington, the results were also mixed in the sense that it had a lot of debt and it was not able to pay back all of its debt. It had to break a contract with Citi Bank, although Citi Bank being a huge, nasty company that didn’t properly review its lending, I don’t feel particularly bad for them.

But at any rate, it created some economic hardship in the city’s budget because of bad decisions that were made, is now being privatized, but has really helped local businesses and local residents with lower bills and much better services. So it’s a mixed bag on the whole in the end.

Now, with municipal broadband networks, they are also typically expected to pay 100% of their costs, and they’re often built, when they’re built in a city-wide fashion, with an expectation that there will be a lot of borrowing and that will be paid back entirely with the cost of the network.

There are some communities, including in western Massachusetts and Colorado, Michigan now, where communities are saying, “We’re gonna build networks like we build our roads,” which is to say they are partially funded by user fees. And in the case of a network, it would be overwhelmingly funded by user fees, but not entirely, which is to say that a city government might subsidize a network with some other form of taxpayer dollars in the way that we do our roads, because our roads create all kinds of indirect benefits, spillover benefits. We can’t really recover those directly, so we just fund them out of the tax base.

But I want to make sure that we get to the thing that I really wanted to talk about in Vermont —

They had a number of funders step up, and that’s gone on to broaden very, very widely. They started building a network that’s now connecting people in more than 25 towns, including … I don’t remember how it is off the top of my head, but a not insubstantial number of towns entirely for every resident within the community.

It’s a nonprofit approach, and these communities actually share ownership in it. That’s been an incredibly successful project, full fiber optic network. It’s incredibly exciting. That actually led to state legislation that allowed other communities to aggregate their communities together and form communications union districts. I have to be a little cautious with that because other states have local improvement districts or local utility districts or special improvement districts. In Vermont, it’s called communication union districts.

But the rest of Vermont that’s not in Chittenden County there where Burlington is, it’s hard to build a municipal network at the scale you’re talking about, 2600 people. You know, for a municipal network, you’re often looking at 10,000 people, 20,000 people as kind of a minimum. There have been success stories that are smaller than that, but it’s much harder. So this brings those people together and allows them to create that scale by forming their resources together basically … and there’s another project in central Vermont that’s taking off on that.

One of the things that I’ve noticed when I visited Vermont and doing work there over the years is that there’s an incredible civic infrastructure there. There are lots of community organizations. Not just formal kind of state-wide nonprofits, but also just local grassroots groups, people organize, put together meetings, do things really … there’s a lot of social and civic capital it seems that exist in that state.

It strikes me that if we were to go looking, we would probably find that a lot of the good policies that have come out of the state have really arisen that way more than anything else … and it’s a reminder that democracy works best from the bottom up.

But nonetheless, the bureaucracy of the state government and the governor, I think they have learned and they’re looking at this approach and thinking, “Wow, this is pretty good.” And so some of the state subsidy programs to build infrastructure are going to EC Fiber and may be available then to other projects like it. But it certainly was a slog to get there.

One of the things that I’ve really loved about Vermont in getting to know it is this public meeting, the town meeting day where they talk about these things. A lot of these votes have to happen at town meeting day, where people come together face to face, it’s a reasonable number of people, many of them know their families and things like that. It’s kind of in some ways an idealized version of what we think of with New England direct democracy and that sort of thing. So, that’s inspiring.

But the other piece of it is is that a lot of times, these people are very fiscally conservative, and I think sometimes people get a wrong picture of Vermont because it is a very progressive state in many ways, but many of the conversation that I’ve seen happen are about how to make sure that you’re really being fiscally conservative and fiscally responsible and not overpaying for things, which is I think one of the reasons that the Burlington telecom problems really rippled across the state and may have harmed some other efforts, because people took it really seriously.

And I don’t know if either one of you has seen that, but I don’t think of this as a state that raises taxes very easily. They have strong fights about it.

So part of what drove Vermont to have a sort of sharper land use policy was this sense of we can’t afford that, we have to be smart about our dollars, and that means we have to make smart decisions about what’s gonna be the durable kind of development that’s gonna last well into the future and be efficient in the sense that we’re gonna get a lot of value out of it economically for what we have to put in in terms of infrastructure.

So I think that’s absolutely right. The state, you’re right, it has this reputation as being very liberal, but you spend time there, you recognize that a lot of it is actually very conservative in a very historic sense of what conservative means.

So if you really want the details, you should check that out. But I want to end with a question to Stacy, because I’ve been thinking about this. ILSR, the Institute for Local Self-Reliance was formed specifically out of the idea that if you wanted to be locally self-reliant, you didn’t have to move to Vermont. We want to celebrate Vermont, and they’re doing a lot of things we should learn from, but we want to say that you can do these things in Portland Maine, in Minneapolis and St. Paul Minnesota, and in much larger places.

So I wonder if you can just reflect on that a little bit.

It really speaks to the importance of kind of hands-on democracy and the role that we all have in that. And I think I also want to say that while there’s something about a small place, like a state government in a state the size of Vermont is very accessible to people in a way that’s maybe not true in a bigger state, that cities can also work this way … that what you can do at the neighborhood level and the accessibility of your city council and the powers that cities have is also right there for the taking for people organizing and getting hold of.

So I think the lessons here really can apply in any kind of geography.

So I’ll just say this. Some people have criticized it for bringing a little bit too much Game of Thrones sex, nudity, violence to a sci-fi series, but as I’ve said to a few people, in a future in which there’s very little consequence for our action and people can basically kind of be re-booted, I actually think there’s maybe too little sex and violence based on when I think of the human character.

But I’ve found the books to be incredibly engrossing and very, very good reading for sci-fi. So if anyone’s looking for that sort of thing, I highly recommend it.

Thank you all for tuning into this episode of Building Local Power. You can find links to what we discussed today by going to our website, ILSR.org and clicking on the show page for this episode. That’s ILSR.org. And while you’re there, you can sign up for one of our newsletters and connect with us on social media.

And once again, please help us out by rating this podcast and sharing it with your friends. This show is produced by Lisa Gonzalez and Nick Stumo-Langer. Our theme music is Funk Interlude by Dysfunction_AL. For the Institute for Local Self-Reliance, I’m Stacy Mitchell. I hope you’ll join us again in two weeks for the next episode of Building Local Power.

Like this episode? Please help us reach a wider audience by rating Building Local Power on iTunes or wherever you find your podcasts. And please become a subscriber! If you missed our previous episodes make sure to bookmark our Building Local Power Podcast Homepage.

If you have show ideas or comments, please email us at [email protected]. Also, join the conversation by talking about #BuildingLocalPower on Twitter and Facebook!

Audio Credit: Funk Interlude by Dysfunction_AL Ft: Fourstones – Scomber (Bonus Track). Copyright 2016 Licensed under a Creative Commons Attribution Noncommercial (3.0) license.

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In this episode of the Building Local Power podcast, ILSR co-director and Community-Scaled Economy initiative director Stacy Mitchell sits down with Laura Flanders to discuss the disturbing trend toward a calcified and monopolistic media landscape.… Read More

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If unemployment is so low, why aren’t workers getting cut in on the deal? That’s a question that our guest, economist Marshall Steinbaum, has been trying to answer. In a new study, which was featured in the New York Times, Steinbaum and his co-authors find that one of the main reasons that wages have not kept pace is that most local labor markets are highly concentrated. Only a few companies are hiring and, as a result, these dominant firms have the power to set wages below the rate that people would earn in a more competitive labor market.

(The technical term for this is “monopsony,” a close cousin of monopoly, which refers to a situation in which a buyer — of labor, in this case — has the power to dictate the price.)

Steinbaum, who’s Research Director at the Roosevelt Institute, joins Building Local Power host and ILSR co-director Stacy Mitchell to discuss his research and how elected officials can fix the broken market for labor.

Photo Courtesy of Roosevelt Institute

Our guest, Marshall Steinbaum, provided a book recommendation, and we’ll also share some of his original research:

Map courtesy of The Roosevelt Institute with this caption: “A map of the average concentration of the 200 occupations that appear most frequently in the Burning Glass data, by Commuting Zone.”

Gies grew up on a farm and he spent a lot of time as a kid tinkering with farm equipment. When he grew up, he decided to become a farm equipment mechanic, repairing tractors and the like, and he really loved the work. He worked for a John Deere dealership, owned by a Wisconsin company called Riesterer & Schnell, which owns 12 different John Deere dealerships across Wisconsin.

But Gies actually left that job because he said they demanded far too many hours of work for too little pay, so three years ago he quit. The problem is that all these years later, despite being surrounded by farms, and despite looking for work, he hasn’t been able to find another job repairing farm equipment. Most of the seven John Deere dealerships within an hour’s drive of his house are actually owned by Riesterer & Schnell, the same company that he left.

They have a monopoly on the supply of jobs repairing farm equipment. It turns out that this is a common situation in most regions of country. Many occupations are dominated by just a few employers at most. As a result, there’s no real competition for labor. Economists have recently began to study this problem and what they’re finding is quite striking. Concentration has played a significant role in holding down wages over the last 20 years. It’s one of the key reasons American workers have not gotten a raise, even as productivity has soared.

Today on the show, our guest is Marshall Steinbaum, one of the economists whose been at the forefront of this research and whose work was featured in that New York Times story. Marshall is Research Director at the Roosevelt Institute. Marshall, welcome to the show.

Even as the economy grows, there’s an equal division of the pie among the owners of labor and capital over time, and consequently, the total absolute amount that’s going to workers would be rising over time as the economy gets larger.

What has been going on now since 2000 at least is that the share of the pie that goes to workers has been in decline, and it’s been in decline in a very specific way. That share of the pie declines when there’s been a recession, as there was in 2000-2001, and then again in the Great Recession, starting in 2008. And then, it’s basically flat during the resulting recovery that follows the recession.

That is the phenomenon that I think is getting increasing attention from labor economists, because it cannot be explained by any of the data, by any of the observables that economists would typically think of as causing long run changes in wages for individuals, and for the economy as a whole. Notably, that would be education, so the view among economists is that what determines how much individual workers get over the course of their lives is what their skills are, and you can tell what their skills are from their level of education and their level of experience in the labor market.

Increasingly, education is just not a very good way of discerning who gets what in the labor market. We had already known this before my paper came out, about monopsony specifically, because there’s an increasing inequality in interfirm earnings among workers. What that means is the company you work for matters more in determining your wages than it previously did. Rather than it be your own qualities, your own data that’s like education and race or gender, that is relevant to knowing what your total income is, it matters more who you work for and their position in the economy, and their position vis-a-vis workers.

I think that had already primed the economics scholarly community to look for explanations for who gets what that are at odds with received wisdom, at least as its existed for the last couple of decades in economics.

But then what’s been really unusual is that in the recovery periods, workers are not seeing their wages go up. And I think most people who are listening will recognize that problem maybe in their own lives. What’s really striking right now is I think, if I read this correctly, unemployment is now at a 17 year low. I mean, we would expect, am I wrong in that kind of condition that we’re experiencing right now, wouldn’t we expect wages to really be being pushed right up?

I mean, if there’s that much demand for work overall, that would have this effect on wages, but we’re really not seeing that and what signs of growth we are seeing in wages are tepid. Is that right?

But that is potentially one of the mechanisms that is broken in the economy. I think one of the causes of measured low unemployment is that a lot of people have left the workforce and you can see that both at younger ages, people spending more time in school, people going back to school, people getting credentialized, and also at older ages, people finding ways to take what amounts to early retirement, or taking early retirement as opposed to waiting for full retirement. All of those mechanisms are eating away at the labor force from both ends of the age distribution, and even in the middle, you see people exiting the labor force for good, and becoming discouraged.

I think that matters a great deal for whether, to what extent monopsony is the ultimate cause of these problems, because monopsony’s a problem that would cause firms to demand fewer workers and thus, lower wages for the workers that they already have, and that could macro level, exactly be at the heart of these issues of, “Well, why has labor force participation seemingly declined among workers at every level of the labor market life cycle?”

What that means, in the nerdiest context, is that employers have power to set wages. In the standard, competitive model of the economy, individual firms do not have the power to either set prices in their market for their output, so that’s monopoly, nor do they have power to set wages in the market for one of their inputs, which is labor. They just go to the market and if they need a new worker, the market sets the price for that work.

When there’s monopsony power, firm’s decisions change because they affect the wages that all of their workers make when they decide to employ or not employ a worker at the margin. So, in the most orthodox model of labor market monopsony, firms will choose to hire fewer workers than they do in a competitive labor market, because of the effect that hiring fewer workers has on the wage that they pay to all of their workers.

That’s the fundamental story that’s going on not just in our paper, but in all of the theoretical work about why would we think that monopsony would have an effect on all of these labor market outcomes we’ve been talking about. Not just wages, but people exited the labor force, as you pointed out, the opioid crisis. Lots of what I would consider labor market pathologies can potentially be explained by widespread monopsony power.

This is kind of the same thing, but it’s about wages and what workers can get in the marketplace. So you’ve done together with a couple of other economists, Jose Azar and Ioana Marinescu, have done a couple of studies that really delve into this and have been getting a lot of attention and I want to talk a little bit about the first one that you did which came out back in December. I’ll say to listeners, you can go to the show page for this episode and we’ll post links to these studies and to the New York Times article, and you’ll find the show page at ILSR.org.

But starting with that first study, one of the most visually arresting maps I’ve seen in a while is in that study, and it’s this map of the United States broken up, I think by county, and it’s a measure of how concentrated the labor market is in each county. That is, the notion that if you’re in a particular occupation, there may only be one or two, or three companies within your commuting distance that you could apply to for work. It’s a highly concentrated market, so you use red to show extremely concentrated and most of the map is red.

And then, some other parts of it are orange and yellow, which are highly and moderately concentrated. That’s pretty much the rest of it, orange, yellow, and red. And then there are few islands of green. Those are unconcentrated markets, but they’re very few. It’s Minneapolis, Denver, Boston, Miami. It’s mostly cities. Then, just surrounded by this sea of highly concentrated labor markets.

Tell us a little bit about what’s behind this map. What kinds of occupations are you looking at? What does this really mean?

That’s a fairly rich dataset relative to the datasets that most labor economists are used to, because you can see at least some information about both employers and employees. So, the classical labor economics that I was referring to before where you study education, race, and gender, that’s because mostly for workers, you just see things about the worker, and also what they get paid, but you don’t see anything about their firm.

Here at least, we do see which firms are posting vacancies and where they’re located, and we can thereby create the map that you were just referring to. What we did is look at the occupations that arise most frequently in this database. I think it’s 20 of the most frequently appearing occupations, and we defined the labor market as the vacancies that are posted for those occupations within a given commuting zone, in a given quarter.

So, that is an important concept, market definition, especially if you’re doing antitrust type analysis, to see whether the market is concentrated or unconcentrated, and to what extent. We think that that market definition is not necessarily exactly the right market definition in every single case, but it is small C conservative, in the sense that when workers are looking for a job, they tend to look for jobs that they think they would have some chance of getting, and if you look at the occupation level that we look at, it’s actually wider than the set of jobs that workers would think they have some chance of getting, looking at that dataset from the perspective of which jobs do the workers actually apply to.

We’re including more job vacancy postings in our market definition than we think are really relevant to individual workers who are looking for a job, so that would tend to underestimate the degree of concentration in that labor market, and yet we still find the results that you refer to, which is that labor markets tends to be highly concentrated.

One last thing to note about how that chart is created, how that map is created, is this whole dataset is about job vacancy postings, insofar as economists have studied labor market concentration at all. Before, it tends to be the concentration of employment, and not the concentration of vacancies, and I think it is correct to look at concentration of vacancies if you can, as opposed to the concentration of employment, generally easier to get data on the concentration of employment, because what’s really relevant to workers who are looking for a job is how many firms are actually hiring.

And again, going back to the idea of pathologies of the labor market, one thing that we observe in this era of slack labor markets is that workers tend to stay in the same jobs for longer because they themselves cannot move up the job ladder as the metaphor that economists typically use, and the flip side of workers staying in the same side for longer and not moving up the job ladder is that any given job is vacated less frequently.

Even if say there’s a number of people currently working as a farm equipment mechanic in the area of Wisconsin, where Matt Gies works, that doesn’t necessarily mean that there are vacant jobs in that area that he can potentially apply to. That’s why I think we show a finding that caught a lot of people’s attention, because they tend to think like, “Oh, well every firm, not every firm has a farm equipment mechanic, but every firm has administrators and secretaries,” and certainly it seems like the healthcare sector employs a lot of people, so you would think that say the market for nurses is relatively unconcentrated, but no, that doesn’t necessarily mean that there are jobs available for people in all of these different occupations, especially not for people who are looking for a job.

There I think there are many fewer options to be had, and that’s why the finding of concentrated labor markets seems to ring so true with people.

Not our evidence. I think that there exists pretty strong circumstantial case that monopsony’s a bigger problem for lower skilled workers, and that’s exactly because they are “more interchangeable,” that their power is therefore diminished in the labor market and what makes workers ever get what they’re worth is the idea that they’re irreplaceable.

Our paper certainly doesn’t suggest that monopsony is a bigger problem for … I should say concentration is a bigger problem for highly skilled people, and in fact, there are occupations in our dataset that most, especially antitrust people, but really anybody who studies the occupational distribution of the labor market might think, “Well, concentration can’t really be a problem for secretaries or administrators or for people who seemingly have skills that are relatively interchangeable across employers.”

I think that’s just not borne out in the data, and the fact that it’s not borne out really should make people rethink their theory of how the labor market works, and how it is determined who gets what in the labor market.

As in any social science endeavor, you want to say, “Okay, well we have documented a concentration and wages, and now let’s see if we can be more robust in saying the variation in concentration causes a variation in wages,” and our estimate for the extent to which the variation in which concentration causes a variation in wages is that if you increase the level of concentration from the 25th percentile labor market to the 75th percentile labor market, you reduce wages by 17%.

But I think the way a layperson might look at that paper, but more generally the question of how big of a problem is monopsony in the labor market, is that you could see all of these different mechanics by which monopsony could affect wages, among other concentration, as not so easily separable. As a social scientist, you want to chop up the potential pathways of causation and say, “Well, this one, specifically concentration, has this estimated effect on wages.”

I think the more general policy question is to what degree does power on the part of employers affect wages? And there are multiple mechanisms by which that could affect wages. I mean, for one thing, let’s say that shareholders or firms are demanding that the firms that they own pay out more money to the shareholders and therefore hire fewer people. I would certainly think that that reflects the increasing power of employers versus employees.

It might have two different effects on the mechanism that we’re talking about. It might cause firms to post fewer vacancies, and it might also cause firms to pay lower wages, but in reality, both of those outcomes are the effect of the same cause, which is the different power that is held by the shareholders to extract what they can from the firm.

This whole long story is about trying to say, “Well, we might say that the point estimate is 17% but we’re trying to net out these other mechanisms that cause variation in concentration, and also cause variation in wages,” where it’s not the variation in concentration that causes the variation wages, but that doesn’t necessarily mean it’s not the rising power of employers that causes the variation in wages. I think that, there’s never going to be any one paper that tells you what the answer to that question is, but I think there’s a lot of research now that suggests that that is really crucial component of understanding what’s going on in the economy and in the labor market.

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We’re back with Marshall Steinbaum, Research Director of the Roosevelt Institute, and we’re talking about concentration, and the ways in which corporate concentration is actually driving down wages and has really kept people who work for a living from earning what their should from their labors, and from all of the productivity increases in the economy.

Marshall, I want to turn to this question of like how, given what your research and the research of others is showing about these effects, what the answer is. I want to start with one potential answer that I’ve heard some people put out there, which is that workers should just move. We talked about the map and I was noting that there are a few, very few, green islands of actually competitive labor markets, mostly cities. Why don’t people in rural Wisconsin and Eastern Maine and Iowa and everywhere else just all move to Miami or Denver?

That is, they want to stay as close as possible to where they originate, and the idea that the economy consists of workers who are highly mobile, any place is on the table, and in particular, if they’re not doing well in the labor market right now, that’s because they’re just unwilling to take the risk, take the plunge necessary and go to a place where they could definitely find a job. That’s just a wrong understanding of how people live their lives, and how people’s work interacts with the rest of their lives.

People don’t want to move. They want to be able to have a job where they live, and it’s not so easy to move because most people get their jobs from their family or their professional network, or I should say their social network, and to say, “Well, leave all that behind and just go to some city where you’ve never lived and you’ll be fine there,” that’s just not true for people. They’re not going to just have a job land in their lap.

I mean certainly if you have a family, you’re not going to take the risk of going some place where you don’t have a job and not being able to support them, and have them live, you’re going to stay where you have a social network and potential family to help you out with all of the things that are necessary in life.

Not only is it just not true that workers move very much. They’ve been moving less and less since 2000, and I would say again that that reflects these labor market pathologies. It is one of the pathologies of the labor market. Moving is something that workers do when they have a job offer that actually makes it okay, makes it worthwhile for them to take the plunge and leave their social network, or because it’s their social network that was actually able to come up with the job offer, even if it’s at some geographic distance from where they currently originate.

It’s indeed a problem that geographic mobility is on the decline, but that’s not a problem that individual workers aren’t doing what they should. It’s a problem that is part of the larger problem of economists and policymakers just not understanding how to do their job.

I think that is again, also overly simplified, and misunderstanding why it is that house prices are high in San Francisco, and what the effect of a policy that would totally deregulate say the housing market in San Francisco, I think that would most likely increase the market power of incumbent owners of housing and of land in San Francisco, and possibly even increase rental costs to the people. That’s more speculative, but it’s certainly not some sort of policy panacea that you could just cause a bonanza of building and construction, that would suddenly bring the place of living in San Francisco down to the level of the rent of living in a much more rural and less densely populated area.

You’ve been among, along with others, been advocating that some of the labor market effects ought to be part of how we think about antitrust, how we think about mergers. Tell me a little bit about what that would actually mean. How would you implement that kind of set of ideas in the context of antitrust policy?

There are some non-merger cases that at least the federal antitrust agencies undertake, but I would say that’s probably the bulk of their work is reviewing the mergers where two companies say, “Okay, well we want to merge” and the agencies either say, “We have no problem with that” or they bring a case and demand concessions, or even go to trial, as it happening now in AT&T/Time Warner.

The key economic analysis that’s undertaken as part of merger review is to deduce whether the merger of two competing companies in a given market would cause prices to go up or down, and that requires defining what the relevant market is for the parties to the merger.

As you’ve just correctly said, that is in the present time, more or less solely done on the basis of monopoly and pricing of output goods, and it is quite likely that the labor markets are defined fundamentally differently from product markets.

If you think of something like the Maytag/Whirlpool merger that happened in the mid 2000s, that was basically the two major home appliance manufacturers merged. They were allowed to merge unchallenged. I think there’s good evidence to suggest that that merger turned out to be anti-competitive after the fact, in the market for washing machines, dishwashers, other appliances that they produced.

At the time, I would bet that the authorities defined the market for washing machines and other home appliances as being the entire United States, or maybe something slightly less than that. But the point is, everyone gets their washing machine. They might shop for it retail, but there’s a distribution network that is essentially geographically unbounded.

Whereas for labor, the whole point of what we’ve been talking about, and certainly of our paper, is that the market for labor is quite a bit geographically determined. If that merger had been evaluated for its labor market impact, you would have seen the whole economy wide market for washing machines is not going to become less concentrated as a result of this merger.

I mean again, I don’t think that turned out to be correct, but I think that was probably the finding that the agencies came up with, but the labor market for workers at the factories where those companies worked are very likely to get more concentrated, and I think we know for a fact that a couple of factories at one or the other parties was closed directly as a result of that merger, and a lot of people were laid off.

Under the present implementation on antitrust policy, those layoffs and closure of factories would be put forward as an efficiency gained from the merger, because the parties would say, “Well, we’re concentrating our production at our most efficient factories, and this will actually end up benefiting consumers, because we’ll be able to lower prices, as a result of the fact that our production chain is more efficient.” But if you, again, analyze the merger from the perspective of labor market, then what looks like an efficiency is actually just a monopsonization of the local labor market and consequently would be viewed as anti-competitive.

That is but one of the areas in which antitrust policy could change as a result of taking labor markets seriously. There’s been a policy interest in curtailing the use of restrictive labor market agreements, so this would be in the realm of antitrust conduct, not of market structure. Things like no poaching agreements, and noncompete closes.

So, no poaching agreements are the parties are employers, and they would be agreeing to not hire one another workers. That is clearly already against the law, because it’s a horizontal cartel basically, in the labor market, and what movement there is to change the law with respect to no poaching agreements pertains to the use of them in franchising contracts.

So, say two McDonald’s franchisees or any McDonald’s franchisee in the contract it signs with the McDonald’s headquarters will say, “Well, we’re not going to hire the employees of another McDonald’s franchisee.” It’s unclear whether that’s a horizontal or a vertical agreement, but in any case, there’s a policy proposal from Senator Cory Booker to make that also illegal, which is good.

On noncompete clauses, that is an agreement between an employer and an employee for the employee not to work for a different company if they leave their current one. That is more controversial as a matter of antitrust law, because since the takeover of antitrust law by the Chicago School, vertical non-price agreements, that is imposing terms of any contract on the counterparty, is viewed as procompetitve, so if antitrust law were to move to treating noncompete clauses in the labor market as illegal, then that would just be a pretty major departure from existing policy, at least vis-a-vis labor. I’m sorry, vis-a-vis antitrust. Vis-a-vis labor may be more in the spirit of existing labor market policies.

The final point I want to make is a big economic theoretical point, which is that our findings, both in the CareerBuilder paper, and especially in our more recent paper that uses a larger dataset of essentially all online vacancy postings, in that paper we do more of an analysis of what is the right market definition for labor markets? We come to the conclusion, as I was discussing previously, that this occupation by commuting zone by quarter is actually fairly conservative because that overestimates the number of alternatives that are really functionally available to most workers if they’re looking for a job.

Based on our analysis in this paper, and from some other work in the literature, it looks like the right labor market definition is more along the lines of individual firms. That means that for every single firm in the economy, or under this theory, most firms in the economy, have a sufficient amount of wage setting discretion that is monopsony power, such that they are monopsonists in the market for their own workers’ labor. If every firm is a monopsony, then what you’re looking at in extreme antitrust policy world is that every firm should be broken up.

That is not really a feasible antitrust policy. What that suggests is rather that antitrust can do a lot in the labor market to make it more competitive, and it’s absolutely appropriate to talk about things like merger review on the basis of labor market definition, and that takes wage reduction seriously as a potential threat of anti-competitive conduct.

But antitrust alone cannot solve the labor market’s problems, and specifically the wage setting power of employers or just employer power more generally. This is why historically we have had labor market regulations, why we have protections for collective bargaining, because we recognize that the employer/employee relationship is inherently one of unequal power.

Whereas, the premise in antitrust is more or less that you have parties with equal power and then you try to correct the market imperfections, such that where one party becomes overwhelmingly powerful, you pair it back, their power, and limit it in such a way as they can exert it to distort markets completely and remove competition. In labor markets, we already know that one party’s going to be more powerful than its employers, so we have a whole realm of policy that is labor and employment policy, and collective bargaining, and unionization rights. All of those are necessary to restore a proper degree of balance to the economy. Antitrust alone is not going to be able to do it.

There are all kinds of ways in which policy needs to help ensure that people have a fair playing field when they’re bargaining as workers. We see this in other sectors, too. We’ve done a lot of work on dairy farms, for example. If you have a very perishable product which is fresh milk, and it’s very bulky, and you can’t ship it very far away before it goes bad, you’re really hamstrung. It’s hard to bargain with the milk process, and so we’ve always supported this history of federal and regional pricing supports in the milk industry, because it just really is inherently not the kind of competition, doesn’t produce enough competition for milk.

The second thing you mentioned was around these noncompete clauses and these poaching agreements which are just we should have you or someone else on the show at some point to talk more in depth about this, because it’s just so scandalous to me that you’re a fast food worker, and you can’t go take a job at a different McDonald’s, or at another fast food outlet, because you’ve signed this agreement or there’s a no poaching deal.

We could take some direct action using competition policy against those kinds of things, and then the first one you mentioned was around mergers, and this idea of having these labor effects and these labor markets being considered in the context of mergers. I have a question that I want to ask you about that to wrap things up here. Historically antitrust was as much about people as producers of value as workers, as it was about us as consumers.

John Sherman, who lent his name to the very first or one of the first antitrust laws back in 1890 said monopoly is a problem because, “It commands the price of labor without fear of strikes, for in its field, it allows no competitors.” Clearly this issue that you’re talking about has always been there from the beginning, and the question I have for you is how we should think about this. It relates to a really interesting blog post that I read, that Lina Khan wrote recently for a European outlet about … Lina is the Legal Policy Director at the Open Markets Institute.

She was writing about this new movement for a better antitrust, and what should be the principles of it. We’ll post a link to this on the show page, but one of the things she talks about is this idea that antitrust went wrong because we really collapsed everything to this single outcome, which is lower consumer prices. We should be careful, she says, not to collapse everything to other sets of outcomes, like for example, labor effects, that really we need to think about antitrust in terms of using it to structure markets.

What we should be doing is asking, “Does a merger create a market where there’s a lot of … Does it reduce competition too much?” How many competitors are there in this market? Is it a market where it’s easy for a new entrant to come in, a new business to come in? We really should be looking more at structure and not at outcomes, and even if we switch from a consumer outcome to a different outcome, we may be not in really a better place in the long run.

I wanted to ask you a little bit about how you think about that, particularly in the context of these labor issues?

I would say we, for ideological reasons, developed the view that the economy structures itself, and hence the sphere in which that policy can affect is relatively narrow, and is about correcting minor deviations from the optimal structure of the economy and where the just field of operations and the field of which policy can affect is constrained from the outset.

Whereas, when antitrust was invented and brought certainly to the federal level, in which there absolutely were economists there at the birth part of the debate about what was the role of this policy alongside other policies like regulation, natural monopolies, utilities, and labor policies. I mean, taxation more broadly, it was that the role of economic policy was to structure the economy. It was up to us to decide what economy we wanted to live in and how it was going to work.

Or, we could just let the big businesses decide, let the powerful decide it. I think there’s a great quote in the book “Social Control of Business” by the economist John Maurice Clark that says the key question is, are we going to let big business control us or are we going to control them? 10 words that are an extremely pithy and absolutely on point summary of the issue that faces us with respect to antitrust and all these other policy areas, and that also point to where economics as a field went wrong, and where just overall policy making has shrunk to a shriveled bare imitation of its former self, in terms of what its ambitions were and what was on the table.

I think that given that it’s now a matter of consensus or nearing consensus that the economy that we live in is not functioning well to the benefit of all, and that really we went wrong somewhere, even if you don’t agree with me that antitrust is a big component of where we went wrong, I think it’s a little hard to deny that economic outcomes are not what they should be.

This whole idea that we really lost something profound and need to win it back I think is going to become a lot more attractive beyond the set of relatively small people like me and Lina who are really focused on this issue of antitrust policy and what the point of that is.

He had seen enough of the move to an active antitrust policy in the second half of the new deal to have something to say about that by the 1939 republication. He also has a lot of very interesting comments about the relationship between what we now call macroeconomic policy or macroeconomics in general, and antitrust and market structure. This is a confluence that has not had a lot of interest from economists in the intervening period up until right now.

I would say now there are papers being published that have that flavor to them, but I think that Clark was absolutely on point in terms of trying to locate the ultimate causes for both macroeconomic failures that happened in The Great Depression, and also why what we might think of a Keynesian macroeconomic policy is a good idea, given how much market power is just a pervasive fact about the economy and how big business and its structure, and market concentration give rise to macro phenomena that Keynes and his contemporaries were concerned about.

That is just, it’s a fantastic book. He covers a ton of ground, and it is, I mean maybe it’s especially meaningful to me ’cause I know how thin and pale and pathetic most economics publications are in the intervening 70 years since Clark was writing, but it certainly makes me think that we went seriously awry somewhere along the way, and we need to rediscover the spirit of John Maurice Clark.

Once again, please help us out by rating this podcast and sharing it with your friends. This show is produced by Lisa Gonzalez and Nick Stumo-Langer. Our theme music is Funk Interlude by Dysfunction_AL. For the Institute for Local Self-Reliance, I’m Stacy Mitchell. I hope you’ll join us again in two weeks for the next episode of Building Local Power.

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