Monday, April 09, 2018

Monopsony and Higher Education

If there’s only one employer in town, the employee’s bargaining power is relatively low.

That’s the empirical claim behind the idea that monopsony -- a monopoly of demand for employees by a single employer in a given region or area -- has a dampening effect on wages.  Given the cost to family life of moving, employees will frequently settle for a suboptimal deal for the opportunity to stay put. In two-earner families, that cost isn’t just emotional.  A move would require finding two jobs in a new location, rather than one, increasing the difficulty exponentially. Over time, those individually rational decisions add up.

Local employer monopolies can occur organically, through sheer market power, or through non-compete agreements.  However they happen, the effect is the same: they shift the balance of bargaining power in favor of the employer.  

A new article suggests that monopsony is a larger factor in wage stagnation than most people have assumed.

As an academic, though, it seems like old hat.  For once, we’re actually ahead of the curve. Monopsony in higher education has been the order of things in the US for most of our history, except for an aberrant period of rapid growth from the late 1950’s to the early 1970’s. During the 1960’s, the United States added an average of one community college per week.  That pace couldn’t be sustained, and wasn’t; I literally don’t remember the last time I heard of a new community college being established.

A paucity of local employers puts real limits on people’s employment options.  It becomes a real issue when, say, a campus closes, as at Eastern Kentucky U, or a college closes, like Mount Ida. There probably aren’t many local options for displaced employees, unless they change industries.  That’s particularly true for faculty in academic disciplines, in which the training is quite specific. And even if there are colleges nearby, if those colleges are affected by the same demographic trends, they probably aren’t hiring much.  

Although academics typically have graduate degrees, they often lack the option of setting up their own practice.  A lawyer can do that, and so can a medical doctor, but a history professor is likely to have a harder time of it.

Starting a medical practice may be difficult, but starting a college is much harder.

Within higher ed, we’ve responded to monopsony by creating different tiers of employees doing similar work.  Those who got in first, or caught some lucky breaks, are largely insulated from risk. Later arrivals, or those who didn’t catch a lucky break, bear the shifted risk to compensate. The arrangement buys local peace in the short-to-medium term, but it doesn’t address the underlying problem, and it’s pretty brutal to a lot of people.

I’d hate to see that arrangement become a broader new social norm.  

At an economy-wide level, identifying monopsony as an issue suggests that it may be time to revisit and strengthen anti-trust law.  Within higher education, though, the answer is less clear. Demographic trends wouldn’t justify another building spree, at least not at a 1960’s level.  Online instruction offers some limited liberation from geography, but full-time opportunities that are entirely online are still the exception.

If employers are going to be relatively few in any given area for a while, we should at least strive to make those employers as sustainable as possible.  Tenure is only as safe as the institution that awards it. Given the realities of monopsony, many former employees of defunct institutions may never find jobs as good as the ones they lost.  That’s a catastrophic waste of talent. Avoiding that disaster seems worth some funding.