In a new book, a prominent labor economist argues that American workers are being underpaid not because of market forces beyond anyone's control, but because employers possess far more power over wages than traditional economic models assume.
The book, The Wage Standard: What's Wrong in the Labor Market and How to Fix It by economist Arindrajit Dube, revives a concept first coined in the 1930s by Joan Robinson: monopsony. Unlike monopoly, where a single seller dominates a market, monopsony describes when a single buyer holds power. In labor markets, that means employers.
Dube argues that the typical American labor market is about as concentrated as having just three employers competing for workers — far fewer than the 'bajillion' competitors assumed in textbook models of perfect competition. This concentration, he says, gives employers the power to pay less than they would in a truly competitive market.
What the Right Is Saying
Conservative economists and business groups have expressed skepticism about how widespread monopsony power truly is. They argue that the competitive model still holds for most workers and that the labor market remains fundamentally dynamic.
The Competitive Enterprise Institute, a free-market think tank, has argued that focusing on monopsony distracts from the real drivers of wage growth: productivity, skills development, and economic growth. Critics note that while concentration exists in some industries, workers continue to change jobs at significant rates, suggesting labor markets remain competitive.
Some conservative economists question whether monopsony power can explain wage differences between similar companies. When Dube points to pay gaps between UPS and FedEx, or between Walmart and Target, skeptics note these could reflect differences in management philosophy, efficiency, or business models rather than monopsony power.
Business groups have also expressed concern that aggressive antitrust action or mandated wage increases could backfire. The U.S. Chamber of Commerce has argued that while some labor market interventions may help certain workers, they risk creating disincentives for hiring or investment.
What the Left Is Saying
Progressive economists and labor advocates have embraced Dube's analysis as a framework for understanding persistent wage stagnation and inequality. They argue that decades of policy choices — from the federal minimum wage remaining at $7.25 since 2009 to weakening antitrust enforcement — have allowed employer power to go unchecked.
The Economic Policy Institute, a left-leaning think tank, has long argued that labor market concentration is a significant factor in wage suppression. 'The truth is employers have a lot of real power over setting wages, and when that power goes unchecked, paychecks stay smaller than they should be,' Dube writes.
Progressives point to successful movements that have challenged monopsony power as evidence the tide is turning. In 2018, Amazon adopted a $15 hourly minimum wage after years of pressure from the Fight for $15 movement. States and localities have passed higher minimum wage laws, and companies including UPS and Target have raised pay in response to public pressure.
Union supporters argue that collective bargaining is one of the most effective tools against monopsony power. Dube advocates for sectoral bargaining, where industry-wide standards are set for all workers in a sector — a system used in many European countries.
What the Numbers Show
Research suggests that labor market concentration is higher than many assumed. A 2020 study by the Economic Policy Institute found that nearly one-quarter of American workers are employed in highly concentrated local labor markets.
The concept gained credibility after economists David Card and Alan Krueger's influential 1994 study of New Jersey's minimum wage hike found no job losses — a finding that challenged the traditional view that minimum wages always harm employment. Their work opened the door to reconsidering monopsony power as a factor in labor markets.
Data from the Bureau of Labor Statistics shows that real wages for many workers have stagnated since the 1970s, while productivity has grown substantially. The gap between what workers produce and what they earn has widened, a trend some economists attribute to declining union power and reduced labor market regulation.
No-poaching agreements between employers, once common in tech, have been documented. The Department of Justice investigated such agreements among major technology companies in the early 2000s, uncovering emails including one from Steve Jobs pressuring Google to stop recruiting Apple employees.
The Bottom Line
The debate over monopsony power reflects a broader reckoning in economics about whether traditional competitive models adequately describe how wages are actually set. Dube's argument — that employer power is a significant factor in wage stagnation — has moved from fringe academic conferences to mainstream policy discussions.
What remains contested is how much monopsony power matters relative to other factors, and what policy responses are appropriate. Supporters say addressing concentrated labor markets through stronger antitrust enforcement, minimum wage increases, and union support could lift wages. Skeptics warn that overreach risks economic harm.
What both sides agree on: the labor market is not as simple as textbooks suggest, and understanding employer power is essential to addressing why many Americans feel their paychecks have not kept pace with their productivity.