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6/9/20, 2:38 PMThere Is Power in a Union | The Nation

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INEQUALITY UNIONS THE SCORE JUNE 18-25, 2018, ISSUE

By Mike Konczal

MAY 23, 2018

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There Is Power in a Union A new study overturns economic orthodoxy and shows that unions reduce inequality.

(Tracy Matsue Loeffelholz)

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6/9/20, 2:38 PMThere Is Power in a Union | The Nation

Page 2 of 7https://www.thenation.com/article/archive/there-is-power-in-a-union/?print=1

FF or a period of 40 years, something managed to keep

inequality in check in the United States. From 1940

to 1980, the richest 1 percent took home 9 percent of

the wealth generated by the economy. Today, just as

they did in the 1920s, the top 1 percent grabs about

double that share. Surprisingly, the cause of this

midcentury “Great Compression” has been largely

neglected by economists, with many of them casually

dismissing the role of unions.

One influential theory, especially among pundits, is that

the supply of skilled workers curbed the growth of

income inequality. Starting in the 1940s, the argument

goes, the increasing education of the American

workforce propelled a broad prosperity. Another recent

account, associated with the economist Thomas Piketty,

maintains that the devastation of World War II drove

down the returns on capital.

But a groundbreaking new paper, “Unions and

Inequality Over the Twentieth Century: New Evidence

From Survey Data,” written by the economists Henry

Farber, Dan Herbst, Ilyana Kuziemko, and Suresh

Naidu, proposes a different engine for that broad

prosperity: unions. The growth of union membership—

to a height of nearly 30 percent in 1955, before falling

6/9/20, 2:38 PMThere Is Power in a Union | The Nation

Page 3 of 7https://www.thenation.com/article/archive/there-is-power-in-a-union/?print=1

to its current low of 10.7 percent—explains the Great

Compression every bit as much as theories about

education or any other single factor.

It may surprise some readers that economists consider

the statement “unions help workers” a revelation akin

to discovering general relativity. (Another recent

finding, “where you grow up matters,” has also shaken

the economics establishment to its core.) But

economists haven’t had the necessary data to study

unions in any depth. Detailed data on education goes

back to the 1940s, but the government only introduced

questions tracking union status in 1973. Yet the authors

of “Unions and Inequality” newly applied a Gallup data

set that allowed them to analyze workers back to the

1930s.

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6/9/20, 2:38 PMThere Is Power in a Union | The Nation

Page 4 of 7https://www.thenation.com/article/archive/there-is-power-in-a-union/?print=1

Before this paper, economists generally believed that

unions largely helped the most skilled and educated

workers—i.e., those who already had higher wages.

Many economists insisted that unions work by creating

insiders who benefit at the expense of outsiders—in

other words, those who get in the union receive a

premium, while those outside the union are denied

opportunities. This theory implies that, since unions

merely transfer wealth among workers, they wouldn’t

lower inequality overall and might even slow economic

growth. But the new paper pushes back on all these

notions.

It turns out that, at their peak, unions were

disproportionately made up of the least-skilled workers

and people of color. Historians continue to debate how

racially segregated unions were in this period, but this

new research finds that nonwhites became more likely

than whites to be in a union starting in the early 1940s,

and that this trend continued until the late 1970s.

(People of color also received a higher union premium.)

This rise in union membership among people of color

begins around 1941, when President Franklin Roosevelt

desegregated the defense industry with Executive

Order 8802, a move designed to stop a march on

Washington planned by civil-rights leaders. As Suresh

Naidu, one of the paper’s authors, told The Nation,

“Starting around World War II, labor unions became no

6/9/20, 2:38 PMThere Is Power in a Union | The Nation

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Mike Konczal Mike Konczal is a contributor to The Nation and a director at the Roosevelt Institute, where he focuses on inequality, unemployment, and new economic ideas.

more likely to be white than the labor market as a

whole. Union households would go on to become less

likely to be white up and through the civil-rights

movement.”

Most economists have also been wrong about unions

and wealth distribution. If unions were largely about

helping insiders at the expense of outsiders, they

wouldn’t bring down every indicator of economic

inequality—but that’s what happened with the Gini

coefficient, the 90-to-10 ratio, and the rest of the

jargon-heavy measures of inequality. The paper also

reveals that decreasing inequality doesn’t reduce

economic growth: The researchers couldn’t find a single

model in which the economy slowed because of a high

union share.

These results should end the simplistic tales in which

education alone challenges the dominance of the 1

percent. If we want to change whom our economy

works for, we must change who gets to exercise power.

And this paper makes it clear: There is power in a

union.

1/26/25, 4:14 PMAmazon: Monopoly or Monopsony? | The Bull & Bear

Page 1 of 3https://bullandbearmcgill.com/amazon-monopoly-or-monopsony/

I n October 2020, the US House Democrats’ antitrust subcommittee published a 449-page

report(https://fm.cnbc.com/applications/cnbc.com/resources/editorialfiles/2020/10/06/investigation_of_competition_in_digital_markets_majority_sta!_report_and_recommendations.pdf)

describing their view that big tech companies Apple, Facebook, Google and Amazon possess unfair market power.

Discussions of whether big tech companies wield monopoly power have been growing in intensity, exemplified by the

recent FTC lawsuit against Facebook(https://bullandbearmcgill.com/monopolies-in-a-modern-world-implications-of-the-antitrust-lawsuit-

against-facebook/).

The issue of Amazon’s market power is a more complex one. On the surface, it may appear foolish to paint Amazon as a

monopoly given that it provides consumers access to seemingly endless amounts of products at low prices from a wide

array of suppliers/third-party sellers. Behind the scenes however, signs point to Amazon wielding a di!erent type of

market power – monopsony power.

(https://bullandbearmcgill.com/)

M C G I L L ' S S T U D E N T - R U N N E W S M A G A Z I N E

B Y ( J U L I A N R O B I N S O N J U L I A N R O B I N S O N ) J U L I A N R O B I N S O N / J A N U A R Y 3 0 , 2 0 2 1

AMAZON: MONOPOLY OR MONOPSONY?

i

1/26/25, 4:14 PMAmazon: Monopoly or Monopsony? | The Bull & Bear

Page 2 of 3https://bullandbearmcgill.com/amazon-monopoly-or-monopsony/

A monopsony(https://www.investopedia.com/terms/m/monopsony.asp), as opposed to a monopoly, is a situation where there is

only a single buyer for a good or service. Amazon reflects this in two respects: its interactions with its third-party sellers

and its behaviour in the labour market.

Beginning with its suppliers, the House subcommittee estimated that Amazon controls around 50%

(https://fm.cnbc.com/applications/cnbc.com/resources/editorialfiles/2020/10/06/investigation_of_competition_in_digital_markets_majority_sta!_report_and_recommendations.pdf)

of the e-commerce market. Given Amazon’s massive user base, Amazon is the main and possibly only choice for many

smaller companies to sell their wares. This is a telltale sign of monopsony power since no other e-commerce company

has a grip on the market like Amazon’s. No other company has a user base like Amazon’s; therefore, Amazon can keep

prices for its suppliers’ products very low. The flip side is that by suppressing product prices in this way, Amazon has

shrunk the profit margins of some of its third-party sellers to very thin levels(https://prospect.org/economy/amazon-controls-

marketplace/).

This issue came to a head in 2014 when Amazon found itself in a dispute(https://www.fastcompany.com/90352975/why-

monopsonies-not-monopolies-are-the-tech-industrys-biggest-threat) with book publisher Hachette. Amazon argued that it should

be able to sell e-books at whatever price it wanted and when Hachette disagreed, Amazon halted sales of Hachette’s

books – a tactic enabled by Amazon’s secure hold on the market.

“ it is also true that since some third-party sellers’ profit margins are being kept so low, that they may be unable to innovate or be forced to provide a less than ideal product to keep costs low

”To the contrary, a case can be made that Amazon operating this way is exactly what makes it such a great service for

consumers. In response to the House subcommittee report, Amazon made the

argument(https://www.aboutamazon.com/news/policy-news-views/fringe-notions-on-antitrust-would-destroy-small-businesses-and-hurt-

consumers) that it is not abusing its market power since it gives consumers access to a wide range of products at low

prices and gives sellers access to a large consumer base. While this is true it one sense, it is also true that since some

third-party sellers’ profit margins are being kept so low, that they may be unable to innovate or be forced to provide a

less than ideal product(https://nymag.com/intelligencer/2019/05/amazon-antitrust-monopoly.html) to keep costs low.

Another way that Amazon’s monopsony power reveals itself is through Amazon’s labour market activity. Amazon has

around 798,000 employees(https://www.statista.com/statistics/234488/number-of-amazon-

employees/#:~:text=In%202019%2C%20the%20American%20multinational,dollars%20in%202019%20net%20revenues.) in the US alone.

Amazon has also come under fire from politicians and workers alike over working

conditions(https://www.theguardian.com/technology/2020/feb/05/amazon-workers-protest-unsafe-grueling-conditions-warehouse),

resistance to unionization(https://www.cnbc.com/2020/10/24/how-amazon-prevents-unions-by-surveilling-employee-activism.html) and

some workers being unable to pay their bills(https://www.bloomberg.com/news/features/2020-12-17/amazon-amzn-job-pay-rate-

leaves-some-warehouse-employees-homeless). In a more competitive market, it may not be possible for a firm to act this way

but the reality is that in many, especially smaller communities, Amazon is the main or only employer of warehouse

workers.

Surprise came for many, when Amazon decided to raise its minimum wage(https://www.cnbc.com/2018/10/02/amazon-raises-

minimum-wage-to-15-for-all-us-employees.html) for US employees to $15 and vowed to use its lobbying power to push for an

increase in the federal minimum wage. It would be naïve to assume that this was an act of altruism, since in many ways

it was a clever business decision and an example of Amazon using its monopsony position.

“ Beneath the surface of Amazon’s easy-to-use and convenient online store, lies potentially harmful treatment of its third-party sellers and its workers

”First, the pay raise may have been an attempt to stall growing e!orts for unionization. Additionally, Amazon is

positioned better to absorb increased labour costs than its competitors. Amazon is then able to drive other warehouse-

based companies’ profits down, while maintaining its own profits through its massive share of the e-commerce market

and its other successful business activities. The fact that Amazon was able to introduce a pay rise like this implies

monopsony power in itself, since such an option is likely too costly for smaller firms. While a pay raise may improve

1/26/25, 4:14 PMAmazon: Monopoly or Monopsony? | The Bull & Bear

Page 3 of 3https://bullandbearmcgill.com/amazon-monopoly-or-monopsony/

workers’ standard of living for now, in the long-run monopsony power is known to lead to downward pressure on

wages(https://www.economist.com/united-states/2018/10/04/amazons-15-minimum-wage-is-welcome), and in Amazon’s case poor

working conditions also.

Like Facebook, Amazon is an example of a big tech company with massive market power, although in a di!erent sense.

Beneath the surface of Amazon’s easy-to-use and convenient online store, lies potentially harmful treatment of its third-

party sellers and its workers. This stems from Amazon’s monopsony power, a less heard-of term than monopoly, but an

equally important one. With a new, Biden administration o"ce in the US, it may prove more di"cult for tech giants like

Amazon to keep a hold on their market power(https://www.cnbc.com/2021/01/23/what-the-biden-administration-means-for-

amazon.html) and the debate over how best to regulate tech firms like this is bound to continue. Monopsony as well as

monopoly power should be kept in mind as these issues continue to play out.