Common Ownership and the Corporate Governance Channel for Employer Power in Labor Markets

• Date: 01 March 2021
• DOI: 10.1177/0003603X20985801
• Author: Marshall Steinbaum
• Published date: 01 March 2021
• Subject Matter: Articles

Article

Common Ownership and

the Corporate Governance

Channel for Employer Power

in Labor Markets

Marshall Steinbaum*

Abstract

This article combines two relatively new subjects of antitrust scholarly interest: labor market power

and corporate governance. In so doing, it speaks to a number of recent debates that have grown up

both inside the scholarly antitrust literature and adjacent to it. First, this article interprets the shift in

the balance of power within corporations favoring shareholders at the expense of workers, both in

economic-theoretical and historical terms. Second, it lays out the role of shareholders and the

common ownership channel as a vector for anticompetitive conduct arising between firms, not just

within firms, thanks to profit maximization at the portfolio level rather than the firm level. Third, it

evaluates the claim that employer market power has increased, relative to other current explanations

for labor market trends. Fourth, it ties rising employer power in labor markets to the increasing

significance of common ownership. And finally, it contends that antitrust is a suitable policy remedy to

the dual problems of anticompetitive common ownership and increased employer power, provided it

abandons the consumer welfare standard and instead elevates worker welfare to an equivalent juridical

status.

Keywords

antitrust, corporate governance, common ownership, monopsony, Clayton Act, gig economy

A range of recent studies have demonstrated that the U.S. economy suffers from a macroeconomic

problem of market power.

1

Indicators of rising macroeconomic market power include the following:

* University of Utah, Salt Lake City, UT, USA

Corresponding Author:

Marshall Steinbaum, University of Utah, 260 Central Campus Drive #4100, Salt Lake City, UT 84112, USA.

Email: marshall.steinbaum@utah.edu

1. By “market power,” I mean the ability of powerful parties to an economic transaction to dictate prices and terms relatively

free of concern that the less powerful counterparty might be able to gain better terms elsewhere, or for the more powerful

party to foster competition among disempowered affiliates or subordinates, to his own economic advantage. Market power

should be understood as a spectrum, ranging from perfect competition, in which individual parties have no discretion over the

terms of a transaction, to full monopoly, where counterparties must either accept whatever terms are offered or choose not to

The Antitrust Bulletin

2021, Vol. 66(1) 123–139

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Increasing markups across industries.

2

Declining worker power and the divergence of pay from worker productivity.

3

Anomalously low corporate investment, given the low and declining cost of borrowing and the

seeming abundance of profitable opportunities and production factor underutilization.

4

The explosion of shareholder payouts (dividends and stock buybacks) as a corporate use of

funds, in place of investment, payments to upstream suppliers, workers’ wages, and taxes.

5

Declining firm entry, labor market dynamism, and initial offerings on public equity markets.

6

Rising horizontal market concentration and the development of vertically integrated and con-

trolled business models in many industries that have the effect of walled gardens.

7

This article focuses on two particular elements of the overall market power story: common own-

ership by shareholders of overlapping and potentially competing firms, and the increased power of

employers in labor markets. The basic story linking these two things to the overall narrative of rising

market power is that during the era in whi ch New-Deal-influenced corporate manag erialism was

dominant in the U.S. economy, from the 1930s to the mid-1970s, shareholders were relatively dis-

persed and management structure was concentrated. Conversely, workers were, on the whole, more

concentrated than they are now, given their greater status and bargaining position within the multi-

stakeholding corporation. Since the revolution in corporate governance that has been playing out since

the 1970s, shareholding has become more concentrated and workers more dispersed, shifting power

within the corporation away from workers and toward shareholders. This trend has changed manage-

ment from being an agent that is relatively insulated from shareholders and beholden to workers to

being an agent that is beholden to shareholders and insulated from workers.

Concentrated share ownership is one of the vectors for channelizing capital market power to benefit

shareholders. Notably, owners of capital have continued to enjoy high returns, even though the long-

term decline of risk-free interest rates and corporate costs of borrowing

8

would seem to suggest that

what they supply to the market is not scarce.

9

The ability of concentrated shareholders to sway the

decisions of management has been crucial to the maintenance of that capital market power. Moreover,

one way in which concentrated shareholders can sway management to increase their return on

transact. In fact, this definition highlights the reality that market power in the hands of one party, an employer, for example,

entails competition on the part of the counterparty, for example, workers vying for scarce jobs.

2. Jan De Loecker et al., The Rise of Market Power and the Macroeconomic Implications, 135 Q. J. ECON. 561 (2020).

3. The Productivity-Pay Gap,E

CONOMIC POLICY INSTITUTE (2019), https://www.epi.org/productivity-pay-gap/ (LAST VISITED FEB.

15, 2019).

4. IGNACIO GONZALEZ &PEDRO TRIVIN,THE GLOBAL RISE OF ASSET PRICES AND THE DECLINE OF THE LABOR SHARE (2019), https://

papers.ssrn.com/sol3/papers.cfm?abstract_id¼2964329; L´ıDIA BRUN &IGNACIO GONZ ´

ALEZ,TOBIN’SQAND INEQUALITY 58

(2017), https://papers.ssrn.com/sol3/papers.cfm?abstract_id¼3069980; GAUTI B. EGGERTSSON ET AL., KALDOR AND PIKETTY’S

FACTS:THE RISE OF MONOPOLY POWER IN THE UNITED STATES (2018), https://papers.ssrn.com/sol3/papers.cfm?abstract_

id¼2907896; Kathryn Holston et al., Measuring the Natural Rate of Interest: International Trends and Determinants, 108

J. INT.ECON. S59 (2017).

5. William Lazonick, The Quest for Shareholder Value: Stock Repurchases in the US Economy,74R

ECH.´

ECONOMIQUES LOUVAIN

ECON.REV. 479 (2008).

6. Craig Doidge et al., The U.S. Listing Gap, 123 J. FIN.ECON.464 (2017); Craig Doidge et al., Eclipse of the Public Corporation

or Eclipse of the Public Markets?,30J.APPL.CORP.FIN. 8 (2018); Ryan A. Decker et al., Where has all the Skewness Gone?

The Decline in High-Growth (young) Firms in the U.S.,86E

UR.ECON.REV. 4 (2016).

7. Lina Khan, The Separation of Platforms and Commerce, 119 COLUMBIA LAW REV. 973 (2019); Brian Callaci, Control without

Responsibility: The Legal Creation of Franchising 1960–1980,ENTERP.SOC. (2020); Sanjukta Paul, Antitrust as Allocator of

Coordination Rights,67UCLAL

AW REV 378 (2020); Gustavo Grullon et al., Are US Industries Becoming More

Concentrated?,23R

EV.FIN. 697 (2019).

8. Holston et al., supra note 4.

9. Simcha Barkai, Declining Labor and Capital Shares,75J.FIN. 2421 (2020).

124 The Antitrust Bulletin 66(1)