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12/8/2021

Remarks by Assistant Secretary of the Treasury for Economic Policy Ben Harris on Promoting Competition in Labor Mar…

U.S. DEPARTMENT OF THE TREASURY
Remarks by Assistant Secretary of the Treasury for Economic
Policy Ben Harris on Promoting Competition in Labor Markets
December 7, 2021

WASHINGTON —Assistant Secretary of the Treasury for Economic Policy Ben Harris delivered
the following remarks at a public workshop on promoting competition in labor markets hosted
by the Department of Justice and Federal Trade Commission.

As prepared for delivery
Let me start by thanking the Department of Justice and the Federal Trade Commission for
hosting this critically important event today. Itʼs an honor to be here among such
distinguished panelists, discussing one of the most important economic issues of our time.
Iʼd like to briefly discuss economic explanations for wage stagnation, especially at the lower
end of the wage scale. Careful followers of the labor market would rightly point to inflationadjusted gains for many occupations with relatively low wages. Yet, this phenomenon, while
welcome, appears to be driven by pandemic-related declines in labor force participation. The
goal, of course, is to sustain wage gains in tandem with participation. And to reach that
objective, we must understand the roots of long-term wage stagnation.
The best way to illustrate long-term wage trends is to use an example from the late and
influential labor economist, Alan Kreuger. During a 2018 luncheon at the Kansas City Fed, Alan
told the story of a man named Je ery Suhre. In 1991, Suhre started working as a registered
nurse at St. John Providence Hospital in Warren, Michigan, and about 12 or 13 years into the
job, he had a realization: His pay was far lower than what it shouldʼve been in a fair market.
Economists have traditionally identified three broad explanations for wage stagnation. The
first, generally put, is globalization. Beginning in the ʻ70s – and accelerating in the 2000s with
Chinaʼs ascension into the WTO – American workers increasingly competed with workers in
foreign labor markets, many of whom would accept lower wages for the same job. Production
moved overseas, and for the jobs that remained, wages began to stagnate. This explanation
is validated by the work of economists Autor, Dorn, and Hanson, who famously found that
increased trade with China cost America roughly one million manufacturing jobs. Still, none of
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12/8/2021

Remarks by Assistant Secretary of the Treasury for Economic Policy Ben Harris on Promoting Competition in Labor Mar…

this explains the story of Je ery Suhre. A er all, no American hospital could lower labor costs
by outsourcing its nurses to Shanghai.
The second explanation is technology. So ware, automation, and other new innovations all
drove up the demand for skilled workers who were fluent in technology and drove down the
demand for those who werenʼt. In some cases, automation has eliminated the need for these
workers entirely. Again, there is careful and legitimate evidence to support this argument, but
not in the case of Je ery Suhre. No American hospital has been replacing its nurses with
robots.
Which brings us to the third argument: institutions that protect worker pay, like the federal
minimum wage and private-sector unions. These have been on the decline for years. Adjusted
for inflation, the federal minimum wage is around 45 percent lower than what it was in the
late 60s, and since about that time, the percent of private sector workers belonging to unions
has fallen from roughly one-in-four to six percent. This explanation also has merit, including in
the case of the Michigan nurses – they werenʼt unionized – but it doesnʼt capture the entire
story. For that, we need a fourth argument that captures changes in the relationship between
workers and firms.
Indeed, what Je rey Suhre realized a er a decade at St. John Providence was that his hospital
had been colluding with others in the area. He had the e-mails. Executives wanted to prevent
their nurses from jumping from one hospital to another for better pay, so they collaborated to
set one regional – and artificially low – wage rate. (In 2006, eight Michigan hospitals paid $48
million to settle a wage-fixing class action lawsuit, in which Suhre was the lead plainti ).
If youʼve ever taken an introductory economics course, you were probably taught that labor
markets are perfectly competitive. A worker making $20 an hour sees thereʼs a job opportunity
across the street o ering $20.10, so he puts in his notice and crosses to the street to his new
job. Thatʼs the perfectly competitive model, and itʼs o en a complete fiction. Labor markets
typically donʼt work like this. For one, workers typically have imperfect information and donʼt
know what a similar job will pay. Or, theyʼre bound by a non-compete agreement, and crossing
the street would invite a lawsuit. Or, even if companies arenʼt breaking the law, colluding to
set low wages, they have immense market power to set low wages.
Speaking at an event hosted by the Department of Justice and Federal Trade Commission, itʼs
safe to assume we all understand the notion of a monopoly. And as labor market competition
has emerged as a first-order consideration, the notion of monopsony has gained traction in
economic and policy circles. And thatʼs ultimately what weʼre here to discuss today, the
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Remarks by Assistant Secretary of the Treasury for Economic Policy Ben Harris on Promoting Competition in Labor Mar…

imbalance between workers and employers in the labor market. As the economist Alan
Manning wrote in his seminal book, Monopsony in Motion, “[T]he relationship between
employer and worker is not one of equals.”
While this anti-competitive streak can be seen as a harmful aspect of our economy – and it is –
our newfound understanding of monopsony power is also a positive development. For years,
weʼve been contending with a series of big and knotty questions: Why are wages low? Why is

income inequality on the rise? This explanation helps us reframe those questions into a much
more tractable one: How do we ensure that when employees negotiate their pay, they do

soon more equal footing?
That was one rationale behind President Bidenʼs July executive order on competitiveness,
which included a series of initiatives from making sure that wages are more transparent in
certain sectors; to curtailing the use of non-compete clauses; to simply studying the
economic impact of limited labor market competition.
Ultimately, creating a fairer economy with better-paid workers will require us economic
policymakers to do what economists donʼt usually do. Instead of revising our model of a
perfectly competitive labor market so that it reflects the real world, we should revise the real
world so that it reflects the competition in our textbooks.
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