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Monopoly and Wages*

Published online by Cambridge University Press:  07 November 2014

David Schwartzman
David Schwartzman*
Affiliation:
New School for Social Research, New York
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Extract

Monopolistic firms pay higher wages than competitive firms, according to J. W. Garbarino and J. K. Galbraith. Some writers believe that monopolistic firms balance the interests of employees, consumers, suppliers, and stockholders rather than maximize profits, a belief which suggests that they are generous employers rather than competitive firms who must strive for high profits. A few economists, in the taxonomic tradition, have suggested the possibility of high wages under monopoly, without expressing any opinion on the matter. The usual belief that monopolists take from the poor and give to the rich thus may be wrong. A finding that monopolists pay high wages also would imply that, for them, profit maximization takes second place to goals associated with public responsibility.

In the main stream of neo-classical theory is the opposite view that wages are low under monopoly. The exposition by Mrs. Joan Robinson assumes an upward-sloping supply curve of labour not only to each industry but also to each firm. Labour economists in recent years have followed Mrs. Robinson in stressing the prevalence of monopsony. It may be shown that product monopolists are likely to have more monopsony power than competitive firms, so, according to neo-classical theory, monopolists transfer income from the poor to the rich through low wages as well as through high prices.

I propose to test the proposition that monopoly raises wages and the opposite—that it lowers them—by comparing average annual earnings in Canadian monopolistic industries with those in matched United States industries which are competitive, or less monopolistic. The theories together with the evidence on which they are based will be presented first.

Type
Articles
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 26 , Issue 3 , November 1960 , pp. 428 - 438
Copyright
Copyright © Canadian Political Science Association 1960

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Footnotes

*

I have benefited greatly from discussions with Phillip J. Nelson.

References

1 Garbarino, , “A Theory of Interindustry Wage Variation,” Quarterly Journal of Economics, 05, 1950, 285–305 Google Scholar; Galbraith, , American Capitalism: The Concept of Countervailing Power (Boston, 1952).Google Scholar

2 Berle, A. A. Jr., The 20th Century Capitalist Revolution (New York, 1954)Google Scholar; Lilienthal, David, Big Business (New York, 1953)Google Scholar; Nourse, E. G., Price Making in a Democracy (Washington, D.C., 1944)Google Scholar; Stocking, G. W., “Institutional Factors in Economic Thinking”, American Economic Review, 03, 1959, 1–21 Google Scholar; Kaplan, A. D. H. et al., Pricing in Big Business (Washington, D.C., 1958), 130–61.Google Scholar

3 E.g., Stigler, G. J., “The Statistics of Monopoly and Merger,” Journal of Political Economy, Feb., 1956, 35.Google Scholar

4 The Economics of Imperfect Competition (London, 1948), 267–78Google Scholar; see also Dunlop, J. T. and Higgins, B. H., “‘Bargaining Power’ and Market Structures,” Journal of Political Economy, Feb., 1942, 1–26.CrossRefGoogle Scholar

5 According to Reynolds, L. G., The Structure of Labor Markets (New York, 1951), 2 Google Scholar, “During the past twenty years it has become customary in theoretical writing to telescope every kind of limitation on labor mobility into a forward-sloping labor-supply curve to the individual firm, occupation, or industry.”

6 I used a similar approach to the effect of monopoly on selling prices in “The Effect of Monopoly on Price,” Journal of Political Economy, Aug., 1959, 352–62.Google Scholar

7 Lester, R. A., Labor and Industrial Relations (New York, 1951), 52–73.Google Scholar

8 Studies of mobility among employees thus are almost irrelevant to the issue. That this is the case is illustrated by Reynolds' Structure of Labor Markets, which is largely devoted to reporting the result of extensive surveys of workers' attitudes to changing their jobs. The study indicates a high degree of immobility and therefore positive-sloping supply curves. But Reynolds' conclusion (pp. 225–9) nevertheless is that supply curves are highly elastic because of the availability usually of a pool of unemployed workers.

9 Lester, Labor and Industrial Relations.

10 Garbarino, , “Theory of Interindustry Wage Variation,” 284 Google Scholar; Eiseman, , “Interindustry Wage Changes, 1939–47,” Review of Economics and Statistics, 1956, 445–8.Google Scholar

11 “Theory of Interindustry Wage Variation,” 290–5.

12 Ibid., 300; Galbraith's argument is similar (American Capitalism, 122).

13 Garbarino, , “Theory of Interindustry Wage Variation,” 301.Google Scholar Group H corresponds to Garbarino's groups I and II, M to his group III, and L to group IV.

14 Rosenbluth, Gideon, Concentration in Canadian Manufacturing (Princeton, 1957), 85.Google Scholar

15 In part, this section is a condensation of the description which appeared in my “Effect of Monopoly on Price,” 354–8.

16 Concentration in Canadian Manufacturing.

17 This assumption was not made in my “Effect of Monopoly on Price.” The change adds five industries to the CC group.