Imperfect Competition in Labor Markets

President Biden’s recent Executive Order on “Promoting Competition in the American Economy” centered employers’ monopsony power and anticompetitive conduct as core components of American competition policy. This is long overdue. At least since Joan Robinson’s revolutionary theorization of imperfect competition in labor markets in 1933, labor economists and social scientists have theorized and empirically documented the extent as well as micro- and macroeconomic effects of employer monopsony over workers. This essay provides an overview of the empirical evidence of imperfect competition in labor markets and documents the scope and substance of early regulatory enforcement efforts — beginning with the Obama Administration on. It then identifies the primary doctrinal and administrative challenges that antitrust enforcers will face in tackling imperfect labor market competition and makes a series of recommendations on how to clarify legal rules, establish enforcement priorities, and ensure an interagency infrastructure and robust agency expertise for successful enforcement.

By Hiba Hafiz1

In her foundational book, The Economics of Imperfect Competition (1933), Joan Robinson made a radical and contrarian claim: the “real world” of labor markets does “not fulfil the assumptions of perfect competition”; labor markets should instead be modeled on imperfect competition. Heterogeneous preferences, information asymmetries, and search and mobility costs natu