This is a little nerdy but since the FTC is embracing new research from labor economics and law, I thought readers would like to know what experts are talking about — see the New School’s recent event on this topic.
First, a speedy overview of labor relations in telecom and tech. Bear with me it’s relevant. The technology, telecom, and video game industries are vital U.S. industries leading the world in innovation. They employ some of the most talented and educated workers in the country. Though some workers are highly paid, many are treated like factory workers of the 18th and 19th centuries, that is, like interchangeable parts. Efforts to improve labor conditions through legal unionization have been thwarted by illegal anti-union actions by tech giants including Alphabet and its You-Tube studios, Facebook, and more.
When quality assurance workers at two Activision Blizzard studios joined a union, the company engaged in an illegal campaign to prevent them from voting.
In contrast, when quality assurance testers at the Microsoft’s MSFT Zenimax studio expressed interest in joining the Communication Workers of America union (CWA), the company did not fire workers or force them to attend mandatory meetings and listen to anti-union speeches. Microsoft followed the law.
In January 2023, ZeniMax voted to join the union – a significant step in the industry’s labor relations. As labor supply increases, the unemployment rate rises, and the already high-paced workday intensifies, more workers may turn to unions for relief.
Microsoft is the only major U.S. video game and tech company that has recognized a union neutrality clause and an eventual union would benefit its shareholders through lower turnover and higher morale. Sony U.S. and Activision
Ok, that background helps us understand why certain events coupled with new research is making the FTC more open to the merger.
Microsoft and Activision Blizzard Merger
In an agreement with CWA, Microsoft has agreed to conduct that is likely to result in a union at the new larger company. The conduct is called “union neutrality.” If the workers unionize – it is their choice – and the new firm engages in collective bargaining, employment should rise and labor conditions should improve. How does that counterintuitive result occur?
Unionizing and Minimum Wages Expand Employment
Step one: By banding workers together in a union and forcing the company to face one wage for the same kind of worker, the union-enforced compensation package reduces the natural market power a particularly large firm has over an individual worker. The firm also must pay a collective-bargained wage for all its workers (or a number of levels of compensation for different kinds of workers).
Step two: The large firm is no longer able to bargain individually with a worker and pay the minimum the worker will accept. Instead, it will pay the negotiated wage which is consistent with what the firm can afford to pay given the productivity of the workers.
Outcome one: In the case of the unionized firm, productivity determines the pay, not the desperation of the worker. The union is incentivized to negotiate the highest wage possible, but not so high that the firm must lay off workers. Therefore, with a union, each worker has a greater chance of achieving a wage closer to their productivity. Without a union, the firm can pay much less than the worker produces because the worker has less choice of employers than the firm has choices of workers. The union plays a critical role in counterbalancing employer market power.
In addition, when a firm pays a wage closer to the productivity of the workers, the firm has no choice but to expand employment – to sell more product and to maximize profits. As Columbia Economics Professor Suresh Naidu and University of Chicago Law Professor Eric Posner argue, without a union, the firm makes more profit by employing fewer workers – those workers who are more inclined to accept a bigger gap between productivity and their wage – and producing less product.
Outcome two: The union effect helps consumers by forcing the company to expand output. Because the FTC chair Lina Khan understands how firms use their size to take advantage of consumers and workers – by restricting output and employment and boosting prices and lowering wages beyond what they would be in competition — the merger agreements the FTC approves can rightfully examine the consumer, community, and labor market impacts of mergers. The FTC will necessarily conclude that some mergers with appropriate conduct agreements benefit all members of society.
Microsoft has committed itself to regulators to conduct behavior – in this case both arms-length commercial contracts and union neutrality — that would make its merger with Activision responsible to consumers and employees. Consumers will have more access to popular games on more platforms and employment may actually expand while wages and labor conditions improve. The agreement Microsoft made with UK regulators for Activision to sell its cloud streaming to Ubisoft Entertainment SA is an example of a consumer benefit that also serves to remedy the regulators’ key concerns about input foreclosure.
The byproduct of a union at a Microsoft/Activision merged company is that the employer’s market power over workers is reduced so the company does not use the monopsony strategy for profit-making which results in restricting employment AND output. Restricting output hurts consumers and in a monopsony situation keeps wages low.
Unionizing has the same effect as any mechanism that allows firms to pay the maximum the company can afford rather than the minimum workers will accept.
The minimum wage has the same effect. A minimum wage that is not too high actually raises employment because the firm has to switch to a non-exploitative strategy to maximize profits. That number two strategy expands production and innovates product to increase top line revenue, rather than squeezing workers to pad the bottom line.
University of Utah Economist Marshall Steinbaum makes the case that the FTC should embrace a union neutrality clause and accept some mergers in order to benefit consumers. The pathway to that result is: the union is a perpetual and automatic enforcer of the promise the merged company makes to moderate profit taking, innovate products, and not underpay its labor force. Enforcement of the merger conditions is nearly free for the U.S. government and Federal Trade Commission when a union is actively engaged in collective bargaining with the new powerful giant firm.
Steinbaum writes “Given antitrust enforcers’ expressed interest in employer power and the potential for market structures and conduct within the remit of antitrust enforcement to harm workers, one natural remedy they might consider is unionization.”
Upshot: Both consumers and workers benefit when the merger means that the firm moves away from ordinary and classic “monopsony distortion” and towards behaving more like a competitive firm making profits with more and better product.
A union or minimum wage means a firm has to abandon its monopsonist way of making profit and adopt a profit-making strategy similar to a competitive firm which is to expand employment and output. The upshot is an employer who once enjoyed labor market (monopsony) power over its workforce and is now forced to shift gears and hire under a union (or under a higher minimum wage). The firm changes its profit maximizing strategy and instead of restricting output and underpaying workers it expands employment and output. Note that expanding output could literally mean more of the same product or a better-quality product or lower consumer prices for the same product. All good things.