May 2018
Primer on Wage Analyses
for Antitrust Attorneys:
Part I
Dr. Stephen G. Bronars
Partner | Washington, DC
sbronars@edgewortheconomics.com
+1 202.580.7777
On April 3, 2018, the Department of Justice announced a civil settlement to
resolve a lawsuit alleging that two of the world’s largest rail equipment suppliers
maintained unlawful agreements not to recruit, solicit, or hire each other’s
employees. The case is likely the first of many that will result from the Antitrust
Division’s attempts to prosecute no-poach and wage-fixing agreements. In
anticipation of related future civil class actions, we have prepared a two-part
primer on wage analyses that are frequently used in employment discrimination
cases and will become increasingly relevant as labor issues cross over into the
antitrust arena. In part one, we provide a high-level comparison of pricing and
wage models and identify relevant data sources. In part two, we discuss several
issues that often arise in modeling wages for employment discrimination cases
and how those issues are further complicated in the context of no-poaching
agreements.
Dr. Deborah K. Foster
Partner | Washington, DC
dfoster@edgewortheconomics.com
+1 202.580.7771
Familiar Territory: Pricing Models
Econometric models are a staple in antitrust cases to analyze questions of
impact and damages—specifically whether the actual price paid is greater than
the price that would have prevailed but-for the alleged conduct. Regression
analysis is critical because it is necessary to isolate the effect on prices that
results from the alleged conduct from all other factors that influence prices.
These pricing models therefore often control for product characteristics and
Originally published in Law360, May 2018.
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Primer on Wage Analyses for Antitrust Attorneys: Part I
factors that affect supply and demand. They also often include an indicator variable for when and where alleged
collusive behavior occurred, which provides an estimate of the alleged overcharge. In simple terms, that indicator
variable is intended to capture the difference between the actual price paid by the consumer and the but-for price
that would have been paid by the consumer in the absence of the alleged collusive behavior.
New Territory: Wage Determination Models
In no-poaching cases, the claim is wage suppression instead of overcharge. In the context of an economic model,
that means substituting employees’ wages for the prices paid by customers. Then, the estimated difference
between actual and but-for prices reflects alleged wage suppression instead of an overcharge. There are, however,
two subtle but important differences between pricing models and models of wage determination: employees are
unique, and people change.
Everyone Is Unique
In price-fixing cases, identifying the relevant product characteristics can be challenging and contentious. The issue is
even more complex in the employment context. There is often substantial variation in the skills and job performance
of individuals within the same job title. Productivity ultimately drives compensation, and two employees in the same
job (even at the same firm) are generally not equally productive. Some productivity differences may be attributable
to observable characteristics such as experience, credentials, or the employee’s book of business, among other
factors. It is therefore necessary to include such individual characteristics in the wage model.
People Change
Further complicating matters is the fact that people change throughout their careers. For example, the longer
someone works, the better the employee gets at his/her job and the more likely he or she is to be promoted to
another position—meaning that wages are expected to grow over time. But it is also true that, at some point, an
employee likely “caps out” at his/her highest position and will accumulate human capital at a lower rate. Further, it
is possible that an employee’s skills will deteriorate over time if they fail to keep up with certifications or changing
trends in the industry. Employees may also take leaves of absence or continue working but face non-work
constraints such as caring for elderly parents or starting a family. Although wages will often continue to increase
in such cases, the rate at which wages increase may be lower. Economists refer to the life-cycle changes in an
individual’s earnings as the age-earnings profile.
Age-earnings profiles complicate determination of but-for wages. Consider one example: a person is in the same job
for four years, the first two are during a no-poaching agreement that was alleged to depress wages and the last two
are after the agreement ended. In this scenario, a simple comparison of the wages between the two periods will not
distinguish between the impact of the agreements and increases in the employee’s productivity over time.
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Primer on Wage Analyses for Antitrust Attorneys: Part I
Data Sources for Wage Determination Models
While variation in the skills and productivity of employees as well as changes in productivity over time present
challenges to the modeling of wages, many relevant factors are available from a company’s Human Resource
Information System (HRIS) as well as other data sources.
1. HRIS Data
The primary source of such individual employee information is the employment history data that is typically
maintained as part of an employer’s HRIS. These data contain detailed information about each employee’s
experience at the firm, including the date of hire along with the employee’s status, job, wage rate, manager, and
work location. Changes in that information over time, such as when an employee gets promoted or takes a leave of
absence, are recorded as effective-dated records. Sometimes this data is maintained in a single source; other times
there are separate sources for changes in status, position, etc. that must be combined for the complete history. A
company’s HRIS is typically the starting point for wage analyses.
2. Applicant Tracking Systems
Information about individuals who apply for jobs are often retained in an Applicant Tracking System (ATS) that tracks
applicants from initial application until they are either removed from consideration or offered a position. Information
on job applications or accompanying resumes can provide prior work experience such as the type and length of
previous experience. That information can also indicate an applicant’s previous employers, thus providing information
on whether its applicants (and ultimate hires) come from alleged co-conspirators or other companies, universities, or
other sources. The flow of applications can indicate whether positions are highly competitive (receive many qualified
applicants) or hard to fill. Other valuable information includes whether there has been a history of applicants either
declining the position or bargaining for a better offer. The relative bargaining power between applicant and employer
may well be impacted by the size and composition of the applicant pool.
3. Employee Reviews
Employee reviews can be a helpful way to differentiate between those who are relatively “better” at their jobs
than others with the same title. Consider two recent law school graduates – both from top law schools, both with
top grades, both with impressive clerkships. They appear very similar on paper, but one may be much better at
writing briefs and motions and is therefore more valuable to the firm. Ideally, that comparison will be evident in the
employee review, either as a specific skill or overall better rating.
4. Payroll
Although the employment history data often contains base pay, payroll data may be important to capture full
earnings. For hourly employees, that may mean overtime earnings or shift differentials; salaried employees may
receive bonuses, commissions, or stock options. Moreover, employees value nonwage benefits in addition to pay.
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Primer on Wage Analyses for Antitrust Attorneys: Part I
Compensation packages may include deferred compensation, fringe benefits, and other forms of compensation.
While some of these benefits may be recorded in the HR system, others may be more difficult to measure.
Nonwage compensation and benefits increase the effective compensation received by some employees and
therefore present challenges in analyzing the alleged impact of anti-poaching agreements. These challenges are
analogous to those encountered in antitrust cases when discounts and rebates decrease the effective prices of
products paid by some customers.
It may also be helpful to understand how off-cycle pay adjustments are requested, decided, and ultimately awarded.
If such adjustments are made in response to outside job offers, the frequency and amount of those adjustments (as
well as the rate at which they are denied) can be important.
5. Job Descriptions and Requirements
Standardizing products across firms and over time is a challenge that must be addressed in alleged price-fixing
cases. The parallel in the employment context is aligning job titles across firms. By comparing job descriptions, job
requirements, and other data (e.g., the number of employees that a manager supervises), a labor economist can
help determine which job titles in Company A are most similar to a given set of job titles in Company B.
Where Do We Go from Here?
This brief introduction to models of wage determination and the data sources for such an investigation will assist in
crafting discovery that helps to build an empirically robust methodology to answer questions about potential injury
and damages in no-poaching cases. Next up: we will build upon this base and discuss issues that often must be
addressed when modeling wages. n
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The opinions expressed herein do not necessarily represent the views of Edgeworth
Economics or any other Edgeworth consultant. This article is intended to inform readers
about legal developments. Nothing in this article should be construed as legal advice or
a legal opinion, and readers should not act upon the information contained in this article
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