Monopsony in Labour Markets: The Corporate Law Contribution

To what extent should corporate lawyers be concerned about monopsony or oligopsony in labour markets? Monopsony and oligopsony are terms describing a market where a single buyer, or a few buyers, of a type or kind of material have the capacity to set the level of demand for the supply and fix the wage rate. In the case of the labour market, that material, obviously, is labour. Labour market monopsony and oligopsony are currently matters of widespread public concern in the UK (see the CMA Report on Competition and market power in UK labour markets). This is attributable to the fact that, over time, they lead to stagnant wages, heightened inequality and overinflated prices charged to consumers. Given the topic’s patently close relationship to labour and markets, corporate lawyers would be forgiven for thinking that this is simply an area for labour law or anti-trust/competition law to worry about. Why should corporate lawyers take any notice?

My recent article, co-authored with Dr. Ewa Kruszewska, argues that corporate law bears as much relevance as labour and anti-trust/competition law to the generation and exacerbation of labour market monopsony or oligopsony. This results from the UK’s legal rules governing horizontal (and possibly also, vertical) corporate takeovers and mergers which serve to constrict labour markets. UK corporate law facilitates ownership and control structures that allow firms to acquire and exercise labour market power without triggering regulatory concern. This occurs especially in mergers where labour markets are affected, but product markets are not.

Labour economists in recent years have attributed wage stagnation to employers' monopsony or oligopsony powers, partially as a consequence of horizontal (and possibly also, vertical) corporate mergers. Traditional competition law cannot see the problem because it does not focus on post-merger impacts on input markets (labour), but instead concentrates more narrowly on the competitive or anti-competitive effects of the merger on output markets (goods/services) and whether consumer welfare will be/is adversely affected. 

Our study drew a parallel with UK corporate law (particularly takeover regulations in Part 28 of the Companies Act 2006) and the UK Takeover Code, which, we argue, are oblivious to the negative and consequential labour market effects of takeovers and mergers because they narrowly concentrate on capital (shareholders) rather than labour (workers). Under Part 28 of the Companies Act 2006, directors are not required to consider the effects of a merger on employees post-acquisition, enabling consolidations that diminish labour competition without scrutiny. These blind spots mean that horizontal mergers that lead to concentrated labour markets but not concentrated product markets remain unregulated, exacerbating the wage stagnation. 

We examined possible changes to takeover regulations and UK corporate laws that might inject a livelier sense of responsibility into director’s statutory and takeover-specific obligations to address this problem. However, after analysis, we concluded that the prevailing shareholder-centric DNA of UK corporate law is a major obstacle to the introduction of any measures that might enable it to forge the tools it needs to intervene in post-takeover labour markets in favour of employees. 

One of the structural problems lies in the legal separation between regimes regulating capital (corporate law) and labour (employment/competition law), which obscures the impact that firm structure and control has on employment outcomes. As long as corporate law remains fixated on one input (capital) rather than another (labour), the only viable primary line of assault on monopsonistic/oligopsonistic labour markets, it seems, is a reorientation of anti-trust/competition law. For example, an expansion of what counts as the ‘public interest’ in a merger review process that empowers the UK competition authorities to intervene and challenge a takeover or merger on the basis of its adverse labour market effects is the most obvious solution, albeit that this would represent a major turn away from existing regulatory orthodoxy. In short, in the absence of a holistic ‘enterprise’ law which conducts a post-merger analysis of the respective market inputs and outputs, the political-economic backgrounding of corporate law presents a formidable impediment to change, since corporate law is incapable of putting its own house in order. 

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David Cabrelli is a  Professor of Law at the University of Edinburgh (ECGI Academic Member)

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