Column: Progressives’ War on Big Business Hurts Workers

  • Employees work on the warehouse floor at an Amazon.com fulfillment center in Peterborough, England, on Nov. 15, 2016. MUST CREDIT: Simon Dawson/Bloomberg

For Bloomberg News
Thursday, October 11, 2018

When Amazon announced last week that it would pay all of its U.S. employees a minimum of $15 an hour — more than double the minimum wage — CEO Jeff Bezos called on “other large employers to join us.” No company has risen to the challenge yet, but you can be sure some of them are talking about it. In addition to raising the pay of its own workers, including those who only work part time or seasonally, Amazon vowed to “work with policymakers in Washington, D.C. to advocate for a higher federal minimum wage.”

Much of the commentary claimed Amazon was forced to do this by political pressure or the tight labor market. What has been missing from the discussion is that it is easier for Amazon and other large corporations to raise wages, simply because these companies are more productive.

Big businesses on average pay significantly more than small businesses, including in the retail sector. For example, Walmart pays an average of 12.5 percent more than mom-and-pop retailers. One study, by Brianna Cardiff-Hicks, Francine Lafontaine and Kathryn Shaw, found that “working in a store with 500-plus employees pays 26 percent more for high-school educated and 36 percent more for those with some college education (including those with a college degree or more), relative to working in a store with less than 10 employees.”

The Bureau of Labor Statistics shows that establishments with more than 500 workers provided 74 percent more in total compensation to their workers than did establishments with less than 100 workers. This is a big reason small businesses are more likely to employ low-wage workers. The Urban Institute found that “although 20 percent of all workers are employed in firms with fewer than 10 workers, such firms employ 42 percent of low-wage workers.”

Big corporations like Amazon not only pay their workers more; on average they also provide much better benefits. Workers in these companies receive 85 percent more supplemental pay (overtime and bonuses, for example), 2.5 times more paid leave and insurance, and 3.9 times more in retirement benefits than workers in businesses with fewer than 100 workers.

But today’s critics of big business argue that the reason large companies like Amazon can pay their workers more is that they have market power and can use it to charge higher prices.

A few corporations in some industries now and then do enjoy pricing power. But as a rule, the companies’ productivity is what explains their advantage.

One older study found that the four largest companies in any industry enjoyed labor productivity rates 37 percent higher than the remainder of the industry. They passed on some of the gains to their workers, with average wages 15 percent higher than in the rest of the industry, and 17.2 percent more for front-line production workers. Big firms are more productive because they invest more in machinery and software, and they get more for those investments than do small businesses.

Despite the advantages to employees from working at large companies, the new antitrust school on the left, led by thinkers like Lina Khan and Tim Wu, claims, on the basis of a small number of studies, that the domination of a few mostly rural markets by a few corporations means that workers have less bargaining power with employers. The government should use the sledgehammer of antitrust to break a few big employers into lots of small employers and — presto — workers can demand higher wages.

In the real world, labor markets do not work like this. If they did, employees at mom-and-pop restaurants and corner grocery stores would be able to demand better wages and benefits than those at Facebook or Boeing. The opposite is the case.

Instead of trying to raise wages by the dubious and roundabout technique of antitrust, why not just raise wages directly? Requiring all businesses, regardless of size, to pay a higher statutory minimum wage would have two salutary effects. First, it would help level the playing field, so that small firms with lower labor costs can less easily compete unfairly against large companies that pay their workers a more decent wage.

Second, it would mean higher productivity, as more employers realize they can no longer compete on the basis of low wages. Some companies — disproportionately large, well-capitalized ones — will adjust to a higher statutory minimum wage by automation. A very few might offshore production, but that is not an option for the majority of U.S. low-wage service businesses, which have local labor forces and markets.

Will the combination of a higher minimum wage and more automation lead to mass unemployment? It never has in the past. All historical episodes of mass unemployment, including the Great Recession, have been caused by financial crises, not by technological innovation or minimum-wage laws. Industries that increase their productivity by automation also lower prices, enabling consumers to spend more on new sectors generating new jobs to absorb workers shed by automated sectors.

Undoubtedly, a higher minimum wage will mean that some small firms whose business model is based on cheap labor will go out of business. Good riddance. Their assets and employees can be absorbed by more productive firms.

A national minimum wage will mean higher incomes for millions of workers, and would boost productivity and GDP. If progressives really care about low-wage workers, they should abandon their battle against big companies and push Congress to pass a higher national minimum wage that applies to all employers.

Robert D. Atkinson is president of the Information Technology and Innovation Foundation, a research group. Michael Lind is a visiting professor at the LBJ School of Public Affairs at the University of Texas. The two are co-authors of Big Is Beautiful: Debunking the Myth of Small Business.