Tag Archives: Labour economics

How Understanding Market Power Can Multiply Social Impact

How can we prepare workers in social enterprises to continue to get good wages going forward, when they enter the open job market? To me, skills-based market power is the way to go.

So just what is this market power? It could come from a coordinated group action to limit competition and maintain higher wages. Or it could come from skill, where the workers have an uncommon ability to deliver value to the market.

Let’s consider this case of worker-based market power more carefully. If the worker’s skill is uncommon and valuable, then there’s truly a negotiation to be had with the employer. The employer needs the worker to deliver the product or service, and it isn’t easy to find enough qualified workers, thus workers are able to demand higher salaries, and the employers know that finding replacements will be tough, and so they value the working relationship more highly.

Now look at the case of employer market power. If the worker’s skill is easy to find then the employer will have a lot of people to draw on, and this will drive down the wage. To make matters worse, if the skill is not particularly valuable, the employer will tend to invest even less in the working relationship, and be more likely to engage in short-term employment arrangements. In other words, workers get the short end of the stick.

Consider the case of Friends International, that among other things trains disadvantaged youths to be cooks in restaurants. Being a savvy organization, they are acutely aware of the challenges that their employees face when they look to find their next job after working for Friends. And thus they strongly encourage their cooks to stay with Friends long enough to master both Cambodian cuisine, as well as Western cuisine, because they know that cooks who are competent at both are in much higher demand in the market. Rather than simply flooding the market with more “run of the mill” cooks who will lack market power, they create much greater social impact by training employees to that higher, harder to achieve level of skill.

Thus I propose that smart social enterprises must be aware of the dynamics of market power. They should consider how to orient their training and job opportunities towards professions where hard-working people who invest the time and effort can develop market power, and enjoy the benefits.