Study shows the limiting competition for grocery labor will cost Seattle-area workers more than $17 million. Layoffs and reduced hours would make the damage even worse.
The following is from the Economic Policy Institute:
WASHINGTON, D.C. (May 9, 2023) — In October 2022, Kroger, the largest supermarket chain in the U.S., announced plans to acquire Albertsons, the second largest, for $24.6 billion—a deal that faces antitrust scrutiny from the Federal Trade Commission and state regulators. Historically, antitrust concerns have focused on the damage to consumers caused by concentration in product markets that gives large firms pricing power. However, a recent wave of economic research has called attention to potential damages to workers’ bargaining power over wages stemming from concentration in labor markets.
In a new policy memo, the Economic Policy Institute (EPI) examined these labor market implications of the proposed merger. It found that the merger of two of the largest supermarket chains in the country will increase employer concentration and reduce the wages of all grocery store workers in affected cities across the country.
Workers’ ability to negotiate better pay and working conditions rests on their capacity to switch jobs. By decreasing the number of outside options available to workers, the merger will limit competition for hiring and retaining employees, and grocery store worker earnings will fall as a result. Crucially, the wage effects we identify are solely driven by this increase in labor market concentration. If the merger also leads to layoffs or hours cuts, this would add another dimension of damage to affected workers.
In Washington state, Kroger operates as Fred Meyer and QFC, and Albertsons also operates as Safeway.
The EPI analysis uses grocery store employment and earnings data and the specific locations of Kroger and Albertsons stores. The EPI found find that:
- The merger will lower wages for 746,000 grocery store workers in over 50 metropolitan areas of the U.S. Increased concentration will suppress wages for all grocery store workers in affected cities—not only those workers currently employed by Kroger or Albertsons;
- The total annual earnings of grocery store workers will fall by $334 million in affected metropolitan areas;
- Because Kroger and Albertsons employ about one quarter of all grocery store employees, most of the wage losses caused by the merger will be a negative externality that falls on grocery store workers employed by other firms. On average, all grocery workers in affected markets will lose about $450 per year in wage income;
- Earnings losses will be smaller in areas with a stronger union presence or a tighter labor market. In areas with weaker worker bargaining power, workers will experience larger wage declines; and
- The expected earnings losses are a pure windfall for the employers. In our analysis, wages fall solely because of a change in labor market power brought about by increased concentration. Quantitatively, this windfall represents a significant transfer of income from wages to profits: The decrease in wages is equivalent to 2% of Kroger and Albertsons’ profits or three times the companies’ CEO compensation.
Read the entire EPI policy memo.