Does consolidation really lead to lower wages?

Concentrated markets can hurt workers' wages but the specifics matter
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If antitrust regulators don’t scuttle the deal, Kroger is set to buy its rival Albertsons for $24.6 billion, allowing the two companies to command about 13% of the US grocery market.

Government scrutiny of the merger has been concerned mostly with the potential for even higher food prices during a period of soaring inflation. But labor advocates warn that the combined power of two giant supermarkets also could hurt grocery workers’ wages and lead to layoffs.

The effect of consolidation on wages

Research indeed shows that when labor markets become concentrated, with just a few firms dominating hiring, wages fall.

Kroger and Albertsons together employ more than 710,000 workers and operate about 5,000 stores. To appease regulators, the companies have said they expect to sell up to 375 stores in regions where the two chains have significant overlap.

But the labor markets in most regions where Kroger and Albertsons stores are located are not all that concentrated, said Herbert Hovenkamp, a law professor at the University of Pennsylvania.

The other big factor in how consolidation pans out for wages is the specific type of job the workers are doing, said Elena Prager, an empirical economist at the University of Rochester’s Simon Business School. In 2019, she co-authored a paper looking at hospital mergers and their effect on employee pay. She saw evidence of a drag on wage growth, but only when the concentration created by a merger was large and the skills of the affected workers weren’t easily transferable.

Among grocery workers, someone employed to stock shelves may have less of a hard time switching to another job with similar pay in a different industry than someone in a more specialized role, such as a meat cutter at a deli, whose skills may not be as transferrable, Prager said.

Weakening union power

Labor organizers, meanwhile, are concerned that a Kroger-Albertsons merger would not just impact wages but create lower union density in certain markets and worsen outcomes for unionized workers.

Jonathan Williams is a communications director at UFCW Local 400, which is headquartered in Maryland and represents Giant, Safeway, and Kroger workers. He said that in Washington DC, where he lives, Kroger operates non-unionized Harris Teeter stores, which are in close proximity to Albertsons’ unionized Safeway stores. Williams said he worries that the merged companies, in choosing which stores to sell or close, would choose the latter.

Mergers sometimes allow employers to create a new employer entity and therefore end existing union contracts, said the University of Rochester’s Prager. Then, when employees go back to the negotiation table with a now larger, more dominant employer, it’s going to be hard for the union to bargain for equally good terms, she said.

What antitrust regulators worry about

In the recently scrapped merger between publishing giants Penguin and Simon & Schuster, the US Department of Justice’s focus was on protecting authors’ earnings, rather than on harm to consumers, which was seen as unusual and signaled a new interpretive effort on antitrust law from the agency.

Regulatory attention going forward could focus more on how big market power affects labor markets. “[W]e’ve been ignoring workers in merger cases for most of the history of merger,” said Penn’s Hovenkamp. “The story about what’s going on there on the ground hasn’t changed, but the attention has gotten directed a lot more to the situation of the workers in the last year or two.”

US senators including Amy Klobuchar and Mike Lee have sent a letter urging the Federal Trade Commission (FTC) to investigate the proposed Kroger-Albertsons tie-up. The FTC is headed by Lina Khan, who views anticompetitive policy as something that not only has the potential to harm consumers, but also workers and suppliers.

“Our concern with any merger and in particular with this mega-merger of Albertsons and Kroger is always the effect on the labor market and the effect on the consumer,” said Williams at the UFCW Local 400. “They are less incentivized to provide better wages, benefits, and other job standards.”

Kroger, for its part, has said it plans to invest $1 billion in wages and worker benefits as a condition of the deal.

But typically, fewer competitors for labor means fewer employers offering better wages or better working conditions for both unionized and non-unionized workers. “And that’s where we expect some of the slower wage growth to come from,” Prager said.

Besides, one of the reasons companies merge is they feel they’re not going to perform well on their own, said Prager. So when they combine, they often are looking to cut costs, which can spill over to wages.