Monopsony Power and Guest Worker Programs

• Published date: 01 December 2019
• Date: 01 December 2019
• DOI: http://doi.org/10.1177/0003603X19875040

Article
The Antitrust Bulletin
2019, Vol. 64(4) 540-565
Monopsony Power and Guest
ª The Author(s) 2019
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DOI: 10.1177/0003603X19875040
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Eric M. Gibbons*, Allie Greenman**,
Peter Norlander***, and Todd Sørensen****
Abstract
Guest workers on visas in the United States may be unable to quit bad employers due to barriers to
mobility and a lack of labor market competition. Using H-1B, H-2A, and H-2B program data, we
calculate the concentration of employers in geographically defined labor markets within occupations.
We find that many guest workers face moderately or highly concentrated labor markets, based on
federal merger scrutiny guidelines, and that concentration generally decreases wages. For example,
moving from a market with a Herfindahl-Hirschman Index of zero to a market comprised of two
employers lowers H-1B worker wages approximately 10%, and a pure monopsony (one employer)
reduces wages by 13%. A simulation shows that wages under pure monopsony could be 47% lower,
suggesting that employers do not use the full extent of their monopsony power. Enforcing wage
regulations and decreasing barriers to mobility may better address issues of exploitation than antitrust
scrutiny alone.
Keywords
guest workers, migration, monopsony, concentration
The emerging study of the power of employers to set wages below the market rate, that is, monopsony
power,1 has invigorated discussions on a variety of ailments in contemporary U.S. labor markets.
Stagnant wages, labor shortages, labor market discrimination, growing inequality, and reduced
1. Monopsony refers to a single buyer of an input and is the counterpart to monopoly in output markets. Oligopsony refers to
two or more large buyers of an input and is the counterpart of oligopoly. Both situations can lead to departures from perfect
competition. We refer to monopsony power interchangeably with employer power, imperfect competition in labor markets,
monopsonistic labor markets or finite elasticity of labor supply to the firm.
* Visiting Assistant Professor of Economics, The Ohio State University at Marion, OH, USA
** Doctoral student, University of Wisconsin, Madison, WI, USA
*** Assistant Professor of Management, Quinlan School of Business, Loyola University Chicago, Chicago, IL, USA
**** Assistant Professor of Economics, University of Nevada, Reno, NV, USA
Corresponding Author:
Peter Norlander, Assistant Professor of Management, Quinlan School of Business, Loyola University Chicago, 20 N. Michigan
Ave., Chicago, IL 60611, USA.
Email: pnorlander@luc.edu

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Gibbons et al.
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workers’ rights could each be explained by growing employer market power over workers.2 While a
vigorous debate has emerged over the degree to which the U.S. labor market is monopsonistic or
competitive, few involved in the discussion of the political economy of employer power would dispute
that guest worker programs could be characterized by monopsony. Such programs have been referred
to as “a benefit to their employers, enabling them to get workers at a lower wage” by Milton Friedman,
the late economist associated with neoliberal economics, and “monopsony visas” by Heidi Shierholz,
an economist with the union-backed EPI.3
Prominent scholars of both economics and law have recently proposed using existing regulations
under antitrust law to counter monopsony power in the labor market.4 As a growing body of empirical
research finds that employers possess oligopsony power and that this has negative effects on wages
across the United States,5 studying a specific context in which employer power is assumed to exist
provides an opportunity to address several important questions for this literature. One critical question
involves the source of monopsony power. Frictions and barriers to job-to-job mobility could make it
difficult for foreign-born nationals to quit, weakening employee bargaining power. An alternative
explanation for these conditions could be that a small number of employers, or an oligopsony, can
dominate the market for guest workers in a particular occupation and region, thus empowering firms to
dictate wages and terms of employment.6 Several recent lawsuits brought by guest workers allege
collusion among employers to suppress wages in specific labor markets, in violation of antitrust law.7
Determining the source of monopsony power is important for developing effective solutions for labor
market dysfunction. The consequences of bad policy are substantial. For example, guest worker visa
programs that permit foreign-born workers to be temporarily employed in occupations experiencing labor
shortages have been criticized for well-documented cases of poor working conditions and exploitation.8
2. The best available estimates of labor market competitiveness in the United States suggest that the average firm has some
market power over workers. See Douglas A. Webber, Firm Market Power and the Earnings Distribution, 35 LABOUR ECON.
123–34 (2015). See also Christopher L. Erickson & Daniel J.B. Mitchell. Monopsony as a Metaphor for the Emerging Post-
Union Labour Market, 146 INT. LABOUR REV. 3–4, 163–87 (2007).
3. Friedman is quoted in Paul Donnelly, H-1B Is Just Another Government Subsidy, Computerworld (July 22, 2002); Shierholz
is quoted in Economic Policy Institute, Monopoly, Monopsony, and the Labor Market: Declining Worker Power in an Era of
Market Concentration, Washington, DC (Dec. 12, 2018), https://www.epi.org/event/monopoly-monopsony/.
4. See Suresh Naidu et al., Antitrust Remedies for Labor Market Power, HARV. L. REV. (2018); Ioana Marinescu & Herbert J.
Hovenkamp, Anticompetitive Mergers in Labor Markets, 93 IND. L.J. (forthcoming).
5. See, e.g., Jos´e Azar et al., Labor Market Concentration (National Bureau of Economic Research, WP 24147, 2017); Efraim
Benmelech et al., Strong Employers and Weak Employers: How Does Employer Concentration Affect Wages? (National
Bureau of Economic Research, WP 24307, 2018); Kevin Rinz, Labor Market Concentration, Earnings Inequality, and
Earning Mobility (CARRA Working Paper Series, CARRA-WP-2018-10, 2018); Brad Hershbein et al., Concentration in
U.S. Local Labor Markets: Evidence from Vacancy and Employment Data (Working Paper, 2018); Yue Qiu & Aaron J.
Sojourner, Labor-Market Concentration and Labor Compensation (SSRN WP 3312197, 2019).
6. Concerns about oligopsony and the capture of these programs by intermediaries have been recognized in government reports.
In 2013, 44% of U.S. employers hiring H-2A and H-2B guest workers indicated that they were using an intermediary. See
U.S. Gov’t Accountability Office, GAO-15-154, Increased Protections Needed for Foreign Workers (2015), at 26
(hereinafter GAO). The top twenty sponsors of H-1B visas increased their share of initial employment from 8% to 40%
between 2000 and 2012. See Anna Maria Mayda et al., New Data and Facts on H-1B Workers Across Firms, in THE ROLE OF
IMMIGRANTS AND FOREIGN STUDENTS IN SCIENCE, INNOVATION, AND ENTREPRENEURSHIP (Ina Ganguli et al., eds., 2018).
7. See Beltran v. InterExchange, Inc., 2018 U.S. Dist. LEXIS 23940; Llacua v. Western Range Ass’n., 2016 U.S. Dist. LEXIS
193120, and discussion, infra, at Section 1.B.3.
8. See, e.g., Lance Compa, Migrant Workers in The United States: Connecting Domestic Law with International Labor
Standards, 92 CHI. KENT L. REV. 211 (2017); Grace Meng, Cultivating Fear: The Vulnerability of Immigrant
Farmworkers in the US to Sexual Violence and Sexual Harassment, Human Rights Watch (May, 2012), https://www.hrw.
org/report/2012/05/15/cultivating-fear/vulnerability-immigrant-farmworkers-ussexual-violence-and-sexual; Mary Bauer,
Close to Slavery: Guestworker Programs in the United States, Southern Poverty Law Center (Feb. 2013), https://www.
splcenter.org/sites/default/files/d6_legacy_files/downloads/publication/SPLCClose-to-Slavery-2013.pdf.

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The Antitrust Bulletin 64(4)
These conditions in some cases involve illegal employer conduct, such as wage theft, coercion, fraud, and
abuse.9
Foreign-born nationals on temporary guest worker visas are likely to be more vulnerable to
employer market power than the typical worker for several reasons. The key market check on bad
working conditions is the power of a worker to freely quit a job and take up work with a new employer.
Two forms of monopsony power, monopsonistic competition arising from frictions and oligopsony
arising from concentration, can reduce an employee’s ability to quit and thus might contribute to the
situation guest workers find themselves in. “Natural frictions” include the practical barriers that keep a
person from seeking a new job such as imperfect information, preferences, and customs that might
deter a guest worker from searching for new jobs. “Institutional frictions” include administrative and
legal factors which might increase the costs of worker mobility and decrease employer entry into these
labor markets. Both natural and institutional frictions can lead to “monopsonistic competition” or the
state in which the availability of outside job options fails to deliver all the benefits of a perfectly
competitive labor market on account of high costs to switching jobs. Finally, “oligopsony” can occur
when markets become too concentrated to deliver competitive outcomes. Oligopsony is potentially the
only cause of heightened monopsony power over guest workers that can be addressed by antitrust
law.10
This paper contributes to the growing antitrust and monopsony...