Horizontal Collusion and Parallel Wage Setting in Labor Markets

Horizontal collusion among employers to suppress wages has received almost no attention in the academic literature, in contrast with its more familiar cousin, product-market collusion. The similar economic analysis of labor and product mar-kets might suggest that antitrust should regulate labor and product markets in the same way. But product markets and labor markets do not operate identically: people behave differently as employees and as consumers. Unlike consumers who can switch products relatively easily, employees face significant frictions in changing jobs. Other labor market frictions are created by the pay equity norm and downward nominal wage rigidity. These and related factors stabilize collusive arrangements and facilitate tacit coordination in labor markets. The implications for antitrust law are explored.