Concentrated corporate power: a problem for workers

In Europe we’re slowly moving towards a winner-takes-all economy where a few large companies dominate entire sectors, giving them excessive power to set wages and working conditions. The collective bargaining power of workers needs to strengthen in response.

Imagine a man looking for a job but there are only four viable employers for his profile. He will have a hard time negotiating good pay because his alternatives—and thereby his bargaining power—are limited. Now imagine that his sister, by contrast, has 50 employers from which to choose. As she has more leverage with her prospective employer, she will most likely be paid a higher wage.

The story of these siblings is the story of the wider labour market, according to a recent report by the Competition and Markets Authority in the United Kingdom, where a significant number of workers are in the situation of the brother. They are looking for jobs in relatively concentrated labour markets, where there are few employers from which to select.

This concentration gives companies considerable wage-setting power, enabling employers to impose terms and conditions. As a result, workers face wage discounts of up to 10 per cent compared with their counterparts in more competitive sectors. A chart from the report illustrates this well: the greater the concentration of the labour market, the lower the wages paid to workers.

 

 

This power imbalance translates into fewer working hours for workers, as companies seek to optimise their labour costs by cutting hours. It is a stark reminder that wages are not simply determined by skill or effort but are deeply rooted in power dynamics within the workplace.

 

Record vacancies

As written elsewhere, the same applies in the European Union. The demand for labour is high, with a record number of vacancies for every job-seeker. We would expect wages to rise but this is not happening. Instead, as a report from the Organisation for Economic Co-operation and Development found, labour markets in many countries are malfunctioning due to excessive corporate power: 16 per cent of workers with specific skills have a limited choice among employers. Some occupations are more affected than others: roughly half of printing workers and health professionals have little to no choice at all.

This has a lot to do with corporate power. Indeed, the weight of the largest firms within manufacturing and non-financial services has grown considerably over time. This poses a growing problem for workers as they try to obtain better wages and conditions.

Importantly, the ‘lack of choice’ does not always mean that there are not enough employers for your profile. Sometimes the lack of choice is a conscious, man-made choice of employers imposed on workers. This is the case with ‘non-compete clauses’ in labour contracts. They basically prohibit employees to search for similar job at a competing company for a certain period. While this can be reasonable when a company makes a large investment in a worker, the wide use of it can make labour markets work like monopsonies (where one buyer controls the market) even though there are actually more than enough companies looking for people.

 

Why collective bargaining makes a difference

The UK report points out a solution: collective bargaining. The main way to restore this imbalance is to pool workers’ power. By joining forces and bargaining collectively, workers can strengthen their position and mitigate the adverse effects of labour-market concentration. The report highlights that in sectors where collective bargaining is prevalent the wage markdown for concentrated labour markets disappears, signalling the transformative potential of collective action:

“In summary, we find that wages are negatively related to labour market concentration, even after accounting for the characteristics of each worker and the firm they work for. This negative relationship disappears for workers covered by collective bargaining agreements, and generally weakened over the past twenty years.”

Despite its obvious benefits, however, collective bargaining in the UK (and many EU countries) has been losing ground over the years. As another chart from the report shows, there has been a steady decline in coverage by collective agreements (blue) and trade-union density (grey), leaving workers increasingly vulnerable to the whims of employers.

 

The declining prevalence of collective bargaining underlines the urgent need to strengthen and revitalise this essential mechanism for equitable wage determination. It not only serves to redress the power imbalances inherent in concentrated labour markets but also promotes a fairer and more inclusive economy for all.

The UK report serves as a call to action: policy-makers, employers and workers alike should recommit to the principles of collective bargaining and empower workers to assert their rights in the face of entrenched corporate dominance. Only through a concerted effort to rebalance the power dynamics can we strive for a future where wages are just and reflect the true value of labour.

 

A turning tide?

Fortunately, within the European Union, policymakers and social partners are not just encouraged but legally obligated to reinforce collective bargaining. Furthermore, nations with minimal coverage under collective agreements must devise precise and tailored national action plans to address this shortfall. This presents European countries with a distinctive opportunity to take back the narrative and pave the way for a fairer and more prosperous future.

At the same time, the situation is far from settled. The EU directive on minimum wages obliges the members states to ‘do something’ to strengthen collective bargaining, but not necessarily to reach something. It’s an obligation of means and not of results. Already, we’re hearing from many unions that EU member states are planning to minimize the impact of the Directive, a lost opportunity that will be paid cash by the workers in Europe.

In order to reduce the power of large corporations, trade unions need to mobilize now to build on the political momentum and restore balance in the employer-employee bargaining. Citizens and workers can strengthen them, obviously, by joining their ranks and pressuring politicians about the need for supportive policies.

 

Stan de Spiegelaere is Director of Policy and Research at UNI Europa, a trade union federation for seven million service workers, and guest professor at Ghent University in Belgium. This is a version of an article that was originally published by Social Europe.