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Why Aren’t They Leveraging Their Awesome Market Power?

March 15th, 2014 · No Comments · Uncategorized

Monopsony power (a supplier of labor who can set wage prices) is cited as a primary reason for labor price floor decrees, especially to justify minimum wage hikes or cartelization of workers.

Monopsony provides a reasonable theoretical justification that effectively bypasses the issue of inefficiency (the theory gets to the “right” price) etc.

The problem in this instance is that if you look at the top low-wage employers in the U.S, there is significant overlap with the companies cited in this USA Today piece, “Nine retailers closing the most stores”.

Weakened companies cannot afford the real estate and personnel costs that go along with supporting hundreds of unprofitable locations. The clearest proof of the problem was RadioShack’s recent decision to close more than 1,000 stores.

RadioShack is hardly alone. During that last several years Gap has closed 20% of its locations. Even Macy’s, which has forecast strong earnings and is considered the most successful of the mid-market retailers, closed stores recently.

My question is: If these companies have such awesome price-setting power in regards to labor, why are their margins so weak? Why are competitive pressures forcing them to close stores, and yet it’s asserted they don’t compete for labor?

I’ll bet there’s that one special study somewhere that can reconcile this.


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