The Profit Paradox: How Thriving Firms Threaten the Future of Work

by Jan Eeckhout

Overview

A pioneering account of the surging global tide of market power—and how it stifles workers around the world

In an era of technological progress and easy communication, it might seem reasonable to assume that the world’s working people have never had it so good. But wages are stagnant and prices are rising, so that everything from a bottle of beer to a prosthetic hip costs more. Economist Jan Eeckhout shows how this is due to a small number of companies exploiting an unbridled rise in market power—the ability to set prices higher than they could in a properly functioning competitive marketplace. Drawing on his own groundbreaking research and telling the stories of common workers throughout, he demonstrates how market power has suffocated the world of work, and how, without better mechanisms to ensure competition, it could lead to disastrous market corrections and political turmoil.

The Profit Paradox describes how, over the past forty years, a handful of companies have reaped most of the rewards of technological advancements—acquiring rivals, securing huge profits, and creating brutally unequal outcomes for workers. Instead of passing on the benefits of better technologies to consumers through lower prices, these “superstar” companies leverage new technologies to charge even higher prices. The consequences are already immense, from unnecessarily high prices for virtually everything, to fewer startups that can compete, to rising inequality and stagnating wages for most workers, to severely limited social mobility.

A provocative investigation into how market power hurts average working people, The Profit Paradox also offers concrete solutions for fixing the problem and restoring a healthy economy.

Product Details

ISBN-13:	9780691224299
Publisher:	Princeton University Press
Publication date:	10/25/2022
Pages:	352
Sales rank:	1,022,145
Product dimensions:	5.20(w) x 7.90(h) x 0.80(d)

About the Author

Jan Eeckhout is the ICREA Research Professor at Pompeu Fabra University in Barcelona and has also taught at the University of Pennsylvania, University College London, Princeton University, and New York University. His work has been widely featured in the media, including the New York Times, the Wall Street Journal, the Economist, and the Financial Times. He lives in Barcelona. Twitter @jan_eeckhout

Table of Contents

1 Introduction 1

Part I The Origins of Market Power 21

2 The Art of Managing the Moat 23

3 Technological Change and Superiority 42

Part II The Harmful Consequences of Market Power 69

4 A Falling Tide Lowers All Boats 71

5 Economy of Stars 95

6 Unequal We Stand 115

7 The Gold Watch Myth 143

8 Rich Suburbanite, Poor Suburbanite 154

Part III The Future of Work and Finding Solutions 173

9 Plenty of Reasons to Be Optimistic 175

10 The Future of Work 205

11 The Quest for Facts 216

12 Putting the Trust Back into Antitrust 234

Epilogue 275

Afterword 283

Acknowledgments 295

Notes 299

Bibliography 313

Index 327

What People are Saying About This

From the Publisher

“A vivid, comprehensive account of the causes and consequences of the recent rise of market power written by a world-renowned expert in the field, The Profit Paradox combines deep economic insight with examples from everyday life that will captivate nonspecialist audiences as much as economists.”—Pinelopi Goldberg, Yale University, former chief economist of the World Bank Group

"Provocative, ambitious, and pitch-perfect for this moment. Eeckhout shows how the rise of mega-profitable superstar corporations makes us all poorer.”—David Autor, Massachusetts Institute of Technology

“Eeckhout has done groundbreaking work on the rise in prices in the economy and the dynamics of the labor market. This book is a significant contribution to the field.”—Gabriel Zucman, coauthor of The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay

“The Profit Paradox is a timely and valuable addition to the national conversation on monopolies and competition. Jan Eeckhout does a masterful job of linking long-running macroeconomic trends to the lives of individual workers and consumers. Economists have only recently understood how market power affects both. He explains how the drive for corporate profit, in combination with insufficient enforcement to prevent market power, lowers wages and working conditions and reduces opportunities for small business. The book is one of the first clear and engaging explanations of how many of the most problematic features of the modern economy are causally related.”—Fiona Scott Morton, Yale University School of Management

Editorial Reviews

Winner of the Silver Medal in Business Commentary, Axiom Business Book Awards

Winner of the William G. Bowen Book Award, Industrial Relations Section of Princeton University

From the Publisher

"The work combines an in-depth economic vision with examples from everyday life."

Eurakalert

"As economist Jan Eeckhout lays out in his new book The Profit Paradox, rapid technological change since the 1980s has improved business efficiency and dramatically increased corporate profitability. But it has also led to an increase in market power that is detrimental for people in work."

Financial Times

★ 06/01/2021

A Brookings report from late December 2020 noted that Amazon and Walmart saw record profits during the COVID-19 pandemic, yet have done little to compensate their frontline workers. The new book from Eeckhout (social and behavioral science, Pompeu Fabra Univ., Barcelona) shows us why this shouldn't be a surprise. Looking at the past 40 years of labor, he traces the growing distance between the economic potential created by new technology, and the stagnant wages for most workers. Eeckhout writes that the modern economic landscape resembles the early 20th-century second industrial revolution, but makes the wealth accumulation of the robber barons seem quaint in comparison to our modern tech entrepreneurs. His book is an exploration of the use of market power to push worker productivity to an all-time high without commensurate compensation. It mixes case studies and the author's research to prove that the present economy is stacked against all workers, even those with advanced degrees, and that world governments haven't done enough to regulate these near-monopolies. Readers of Binyamin Appelbaum's The Economists' Hour or Daniel Markovits's The Meritocracy Trap will find a familiar story told through labor's lens. VERDICT An important study on why workers feel both more productive and less secure in their work and lives.—John Rodzvilla, Emerson Coll., Boston

Library Journal

2021-04-13
A sharply argued thesis that one effect of all-powerful corporations is the suppression of wages for working people across the board.

Productivity has risen markedly since 1980, writes Barcelona-based economist Eeckhout, “yet what most workers get in exchange for producing that output has not kept up.” Indeed, wages have fallen, especially for “unskilled workers” and those without a college education. Even skilled professionals are losing ground. Meanwhile, corporations such as Amazon and Google have become near monopolies. The labor share of the economy, as Eeckhout puts it formally—though this book requires no background in economics to understand—was about 65% in 1980 and is below 58% today. “A decline of seven percentage points—or 10 percent—may seem tiny,” he adds, “but that includes the earnings of…top earners, and not just the low-paid workers.” Given the inequalities in today’s winner-take-all economy, workers understandably feel that they have no stake in the game and no vested interest in seeing that the system is maintained, giving rise to political unrest. In a novel, intriguing argument, Eeckhout holds that Amazon and other monopolies could well afford to lower their costs, which would mean more volume, yet they keep their prices high in order to curb demand and keep labor costs down while maintaining market power. The author notes that whereas the two largest retailers before the Depression, Sears and A&P, had a market share of just 3%, Walmart and Amazon today “account for 15 percent of retail sales.” Yet antitrust regulators, as well as politicians of all stripes, are silent. Eeckhout proposes that existing antitrust laws be brought to bear to force higher wages as well as to pry data from the hands of corporations and back into the purview of the consumers who generate it.

A provocative case, and one that those who feel undervalued in the present economy will surely appreciate.

Kirkus Reviews