Small Business Perspective: Market Power Is Bad For Consumers

Small Business and Market Power

Recently, nearly 50,000 dockworkers temporarily closed our major ports along the East and Gulf coasts. Had the strike continued beyond just three days, it would have produced major shortages as occurred during the Covid pandemic, rekindling inflation. The workers demanded significant pay increases (77% increase over six years) and an end to automation investments in the ports. This resembles the auto workers’ demands that contributed to the bankruptcy of General Motors in 2009. In both periods, inflation was high, contributing to labor unrest as inflation reduced the value of wages and savings.

Aligning Pay Increases with Productivity

In the long run, pay increases must align with productivity increases. If workers have more money to spend (e.g., pay raises), companies must also produce more stuff to be purchased with the increased income. Otherwise, prices will rise as earners bid for the supply of goods and services, which did not increase. The government’s mailing of Covid stimulus checks is a good example. Consumers had a lot more money but they weren’t producing more stuff to be purchased due to the government shutdown. This caused prices to be bid up, resulting in inflation.