Lessons from a Failed Merger

The two largest hospital systems in Rhode Island, Lifespan and Care New England, wanted to merge. I wrote previously that:

Basic economics tells us that if a company with 50% market share buys a company with 25% market share in the same industry, they have strong market power and are likely to use this monopoly position to raise prices…. I think the Federal Trade Commission will almost certainly challenge the merger, and that they will likely succeed in doing so

It turns out I was right about the FTC challenge, but wrong that it would be necessary. The same day that the FTC challenged the merger, Rhode Island Attorney General Neronha blocked it. The law in Rhode Island is such that he doesn’t need to convince a judge like the FTC would; the merger was done unless the parties tried to appeal. But today they gave up and officially terminated the merger.

I was surprised by the AG’s move because the merging parties have so much political clout in the state, and many politicians like Senator (and former RI AG) Whitehouse had expressed support for the merger. I expected that even if state leaders didn’t like the merger, they would approve it with the expectation that the FTC would step in and be the bad guy for them. So AG Neronha blocking the merger was a pleasant surprise.

I also said previously that the FTC might challenge the merger for creating a monopsony (predominant employer of health care workers) as well as a monopoly (predominant provider of hospital services). This turned out to be one vote short of true. The FTC voted 4-0 to challenge the merger, but released two concurring statements explaining why. The two Democratic commissioners wanted to challenge the merger on both monopoly and monopsony grounds, while the two Republican commissioners thought it would only be a monopoly. This didn’t matter for this case, since they all thought it would be a monopoly, and since the AG blocked it. It was also odd that the Democratic FTC commissioners were more worried about labor than the actual unions involved. But it may be a sign of more monopsony challenges to come, particularly once the vacant spot gets filled and a 3rd Democrat is breaking the ties.

This was the first big political / economic issue I’ve got involved in since moving to Rhode Island, and I have to admit I was worried about making enemies. But despite speaking against the merger at the same forum as its most powerful proponents, speaking to several journalists, and at the AG’s public forum, I didn’t hear a single angry response; if anything I made friends.

One final surprise in all this is that the two hospitals systems are reported to have spent $28 million pursuing the merger. Apparently money can’t buy everything. But what a lot to spend on something that so many of us thought was clearly destined to fail.

Remote Work vs Employer Power: Why I’m Not Sweating Tenure

When there’s only one employer in town who hires for jobs like yours, they have labor-market power, and can pay less and have worse working conditions than a competitive firm would. Economists call this “labor market monopsony” but I like the term “employer power”, which is simpler and makes sense when there are a few employers as well as when its literally just one. This keeps down the wages of machinists at the only factory in town, nurses at the only hospital in town, and professors at the only university in town.

Of course, workers in this situation could always move and get a better job elsewhere, and this does put some limits on employer power, but many workers have strong preferences to stay in their home, which means the balance of power is with the employers- or at least, it has been.

The growth of remote work means that workers can get jobs all over the world (or at least all over nearby time zones) without having to leave their town. Which means that monopsony is over, at least for jobs where remote work is possible.

I’m going up for tenure at my college soon, meaning that by next June they will tell me either that I have a job for life or that I’m fired. This “up or out” system naturally causes a lot of anxiety for professors. Partly this is because many professors’ identities are wrapped up in our jobs to an unnecessary and unhealthy extent, and so we take it as a judgement on our worth as human beings. But partly there was always the very practical problem that failing tenure almost certainly meant you would either need to move, accept a substantially worse job, or both.

The thinness of the academic labor market means that unless you live in a major city, its probably the case that no university nearby is hiring tenure-track academics in your subfield this year; and even if you are in a major city, there are probably only 2-3 searches in your field, and they will be so competitive that you almost certainly won’t get the job. To have a real chance at another good academic job, people need to apply nationwide (when I got my first job I sent out 120 applications all over the country to get 1 offer). Getting another job locally generally means taking a job with much worse pay, worse conditions, or both- like high school teacher, adjunct professor, or entry-level business analyst. Those in relatively practical fields like economics were able to get decent jobs outside of academia (PhD economists in private sector and government jobs typically earn better salaries than academics, at the cost of working more hours with less freedom), but such jobs were plentiful only in a few major cities (DC, SF, NYC, Boston), which usually still meant moving. Even in a mid-sized state capital like Providence, I don’t think I’d have an easy time finding something here- or I didn’t think so, until remote work became ubiquitous last year.

Now I won’t be losing any sleep over the possibility of losing my job next year. Partly I think my odds of getting tenure are good, but even a 1% chance of losing my job would have been worrisome in the pre-remote world. Now instead of worrying I just think about the huge range of opportunities in tech, finance, consulting, business, think tanks, and even government. Remote also addresses one big reason I ignored those jobs in the first place and only applied in academia- flexibility. I didn’t want to be stuck in an office 40+ hours/wk; I wanted to be able to pick my kids up from school. Now flexible hours and the ability to be evaluated on output rather than time spent at the office seem to be increasingly common.

To the extent that remote work puts a dent in employer power we would expect to see higher employment, higher wages, and fewer people feeling trapped in their jobs. We’ve seen all of these in 2021- quits in particular are at an all-time high, a good sign that workers don’t feel trapped- though much this could simply be due to the rapid economic recovery. The real test will come when we see how much this is sustained past the initial recovery, and whether it is mainly in remote-able jobs or is a broad improvement.