Dominant Employers May Be Choking Off Wages: Eco Research Wrap

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(Bloomberg) -- Monopsony might just be the word of the year, at least for economics wonks. 

The less-famous brother of monopoly, it means there are many sellers but only one buyer for a product. That description fits a big chunk of the U.S. labor market right now, and it matters for wages: when companies face limited competition, they don’t have to up pay to “buy” work hours. 

A growing body of research tackles just how labor market concentration is morphing traditional economic relationships in America, including the paper that leads today’s research wrap. We also take a look at new data on consumers’ pay outlook, the pitfalls of central bank transparency, and the costs of new steel and aluminum tariffs for the U.S. and, potentially, the world. 

Check this column each Tuesday for new economic research from around the world. 

Price-setters 

Concentration in U.S. Labor Markets: Evidence From Online Vacancy Data
Published March 2018 
Available on the NBER website 

Antitrust enforcement focuses on protecting consumers, but it might be time to turn a critical eye on how concentration effects labor, based on a new paper. 

Between 33 percent and 54 percent of local U.S. commuting-zone labor markets are highly concentrated, based on a study of data from Burning Glass Technologies, an analytics software company, by the University of Pennsylvania’s Ioana Marinescu and co-authors. If the authors use counties to define labor market, 74 percent are highly concentrated.

 If a handful of employers dominate many labor markets, they may be able to set wages – rather than competing for workers against other firms, which could push them higher. In fact, prior research has shown that greater concentration is associated with lower posted wages on online job boards. “Given the observed level of concentration, company mergers have the potential to significantly increase employers’ labor market power,” they write. “The labor market concentration measure we develop here can be usefully leveraged in merger reviews.” 

Weekly (demo)graphic 

Survey of consumer expectations
Published March 12
Available on the New York Fed website 

American households, and especially the youngest ones, are feeling better about the outlook for their paychecks, based on the latest New York Fed Survey of Consumer Expectations. Notably, though, the numbers have yet to really take off, despite historically low unemployment and anecdotal reports that wages in some parts of the country are moving up.

Central bank clarity? 

More Frequent Central Bank Communication Worsens Financial and Macroeconomic Forecasts
Published March 4
Available on the VOX website

The biggest result of investor demand for more central bank speeches may be tone deafness. Private sector forecasts have become less accurate as policy makers have embraced transparency and forward guidance, according to research from Thomas Lustenberger and Enzo Rossi at the Swiss National Bank.

The review of 73 countries showed that the number of central bank speeches per year climbed to about 900 from 150 between 1998 and 2014. Forecasts for interest rates, long-term yields, inflation and economic growth in many cases worsened in places with more communication.

Investors are probably led into focusing on side topics, complex arguments, and too many uncoordinated voices, the authors write. Direct signals about the path of future interest rates, known as forward guidance,  “didn't affect either the errors or the dispersion of long-term yield forecasts and had only a weak effect on short-term interest rate dispersion,'' the authors wrote. Publishing voting records “are even detrimental to the quality of interest rate forecasts.''

“Central banks ought to speak less often if they want to improve the quality and alignment of forecasts of variables that are central to monetary policymaking,'' Lustenberger and Rossi wrote.

Tariff tally 

Various research notes 

After President Donald Trump slapped tariffs on steel and aluminum imports, prompting other countries to threaten trade retaliation, Wall Street economists raced to tally the costs. Their best guess? It’s totally dependent on whether this spurs a tit-for-tat trade war. 

The tariffs – 25 percent on steel and 10 percent on aluminum – offers an exemption for Mexico and Canada provided they agree on a new North American Free Trade agreement, and Trump said other countries could petition for an exclusion. Bank of America has tallied which industries are most exposed to steel and aluminum tariffs, based on 2015 data, and found electrical equipment, motor vehicles, and other transportation equipment rank near the top of the list.

Negative impacts could be concentrated in states with a big share of jobs in those downstream industries, like Indiana, North Dakota and Wyoming. But a “more broad-based hit to the economy from the tariffs could come from the response of impacted trading partners.’’ 

Goldman Sachs economists agree with the latter point. The tariffs only impact 1.8 percent of goods imports, they point out, so at face value they should have a tiny macroeconomic effect. But a severe trade war in which everyone imposes a tariff on everyone else “leads to higher world inflation, tighter monetary policy and slower growth. This drag is amplified if equity prices drop around the world.” 

©2018 Bloomberg L.P.

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