O F LATE, POWERFUL corporations have been pairing up with impressive ardour. Perhaps it is something in the air. Or perhaps it is friendly regulators. On October 22nd America’s antitrust authorities gave their blessing to this year’s latest mega-merger: the union of Praxair and Linde, two industrial-gas giants worth a combined $90bn. Despite signs that industrial concentration is sapping the economy of its dynamism, regulators remain permissive. That might be because, when they scrutinise a merger, they focus solely on consumers’ welfare. A growing body of research suggests regulators should be as eager to address the harm done to workers.

In perfectly competitive markets, individual firms wishing to sell their widgets must charge the prevailing market price and no higher. But the situation changes when one or a few firms dominate a market. A monopolist may charge higher prices. The calculation is that consumers, faced with little choice, will buy enough of its offerings at a higher price to yield greater profits. But some sales are lost because of monopoly pricing, which represents a “deadweight loss” to society—a missed opportunity to raise total welfare. Monopolies can also stifle innovation. AT&T, America’s once-mighty telecoms firm, used its dominant position in the operation of local phone networks to overcharge consumers for service and handsets. It took the break-up of the network monopoly to clear the way for falling prices and innovation.

Just as powerful firms may use their clout to overcharge customers, they can also manipulate markets to pay lower wages. In competitive labour markets an individual employer can do little to squeeze pay, because workers can easily find better-paying jobs. But in a “monopsony”, such as a mining town with only one mine, workers have fewer options. Firms can offer wages below the competitive-market rate knowing that many workers will not be able to afford to turn them down. As with monopolies, this exercise of monopsony power boosts profits but saddles society with a deadweight loss—the underemployment of workers—as well as other costs, such as higher spending on state benefits.

Antitrust regulators overwhelmingly focus on the harm to consumers when judging market power. But there is mounting evidence that damage is also done within labour markets. The share of national income flowing to workers has declined since the 1950s, from about 65% to 58% in America. The growth of wages has lagged behind that of productivity. It is likely that bosses’ market power deserves some of the blame. A recent paper by José Azar, Ioana Marinescu and Marshall Steinbaum analyses 8,000 local labour markets and finds most of them to be highly concentrated. An increase in employer concentration from a lowish level (the 25th percentile in the distribution) to a higher one (the 75th percentile) is associated with a drop in pay of 17%. Cases of labour-market collusion by employers have also come to light: large technology firms, such as Google and Apple, were revealed to have agreed not to poach each other’s workers. Nearly 40% of American workers have at some point been bound by a non-compete agreement, barring them from working for their employers’ rivals.

Even so, regulators rarely fret about the labour-market effects of corporate tie-ups. In a recent paper Suresh Naidu, Eric Posner and Glen Weyl put forward three explanations for this. First, legal theory since the 1960s has embraced the idea that a merger’s economic efficiency ought to be judged solely by its effects on consumers. Second, regulators have not caught up with the emerging conclusion that labour markets may not always be competitive. Third, any harms to workers were thought to be best dealt with by labour-market regulation and trade-union bargaining, rather than by antitrust rulings. But deregulation and the erosion of unions’ power have weakened those countervailing forces.

A growing number of economists therefore argue that antitrust policy must take monopsony more seriously. As Mr Steinbaum and Maurice Stucke note in a recent paper, the current “consumer welfare” standard is only one way of applying the law. Antitrust statutes are written broadly enough that other standards might be applied just as easily. The authors support an “effective competition” standard, which would push regulators to assess the health of competition in all markets. Importantly, it would also shift the burden of proof onto merging firms, asking them to demonstrate that consolidation would not undercut competition.

Messrs Naidu, Posner and Weyl propose other rules of thumb for weighing up mergers. Under the “market definition and concentration” approach, regulators would determine the relevant labour market and scrutinise mergers that would push concentration over a certain threshold. Defining the relevant labour market can be tricky. In a recent paper Ms Marinescu and Herbert Hovenkamp point to eBay, an auction site, and Intuit, which provides tax software. Each offers very different services. But a non-poaching agreement struck between them suggests they see themselves as competing for similar workers. Happily, data from job-search websites make it easy to observe the types of workers that look for certain jobs—in other words, the labour markets they operate in.

Labour pains

An alternative “downward wage pressure” approach would look at how often workers tend to switch from one firm to another. A proposed union would come under scrutiny if many of the job moves in a market occur between two merging firms. Such scrutiny, the authors reckon, would entail the detailed sort of economic analysis that regulators already use to judge product-market competition, but applied to labour markets.

To date, governments have been too focused on the harms to customers from increasing industrial concentration. A consideration of the impact on workers is overdue. Without competition, large firms become exploitative bureaucracies that are accountable to no one. Consumers and workers alike deserve better.