Business Paper on How Buyer-Supplier Relations Affect U.S. Workers’

Wage Stagnation and Buyer Power: How Buyer-Supplier Relations Affect U.S. Workers’ Wages, 1978 to 2014

In his study, Wage Stagnation and Buyer Power: How Buyer-Supplier Relations Affect U.S. Workers’ Wages, 1978 to 2014, Wilmers demonstrates dependence on dominant buyers leads to wage stagnation (2018). The issue of wage stagnation in the U.S. from the 1970s has been intensively covered. Market restructuring that occurred from that period forced many individuals to work in organizations that largely rely on sales outside corporate buyers. These outside buyers, interestingly, have the potential to dictate the working conditions of their suppliers, steering various changes including wage stagnation of middle-income workers. Wilmers’ panel data on publicly traded company indicate that dependence on large buyers decreases suppliers’ wages and contributes to 10% of wage stagnation in nonfinancial firms since 1978 (2018). The findings reveal how product market restructuring and new trends of economic segmentation influence wages. The existence of unequal bargaining relations between suppliers and their corporate buyers slows wage growth, Wilmers states.

Between 1947 and 1979, the U.S. experienced 2% wage growth each year. From 1979, however, the country experienced wage stagnation of 5% annually, despite the wage upsurge towards the end of the 1990s (Wilmer, 2018). This occurrence is partly attributed to the drastic drop in the productivity of middle-skilled workers after the introduction of automated routine work. Also, import competition forces manufacturers to lower the price of their goods, hence, lower wages. Wilmers emphasizes that buyer power plays a major role in wage stagnation. Existing research has indicated that dominant buyers can induce profit reductions among their suppliers and that the suppliers with concentrated buyers have less returns on sales (Wilmers, 2018). The researcher reinforces that even if the buyer-supplier relations enhance suppliers’ productivity, buyers are the bigger beneficiaries from the resulting financial gains.

To explain this effect of buyer power on wage stagnation, Wilmers discusses three points: social distance, concentrated benefits, and dependence. Explaining the issue of social distance, he states that outside buyers reap the benefits of social distance from their suppliers’ workers by ignoring the fairness norm that would otherwise require them to buy at higher prices. Consistent with this concept, companies are more likely to pay lower wages for outsourced services such as security and janitorial compared to direct workers. The suppliers’ vulnerability to pressure from outside buyers also increases as the contracting relation with the buyers lasts longer. Second, supplier cost-cutting delivers concentrated benefits to dominant buyers. Dispersed buyers are faced with challenges including ineffective coordination and insufficient incentive to influence wage reductions by suppliers. When a suppliers’ greater fraction of revenue comes from a single buyer, the supplier is more likely to bow to the cost-cutting pressure compared to when dealing with multiple independent buyers (Wilmers, 2018). This, as a result, gives the dominant buyer the power to lower the suppliers’ wage costs. Another issue on the impact of buyer power on wage stagnation is dependence. This concept has been clearly illustrated above: large buyers have the power to force wage reductions among their dependent suppliers. Wilmers tested the buyer-power theory by observing the impact of changing buyer-power relations on the suppliers’ workers’ pay. His longitudinal research findings revealed that bargaining power undermines resource distribution and availability among dependent suppliers. This article demonstrates the United States’ experience of low wages and slow wage growth in all industries today. Wage stagnation is being experienced worldwide despite the soaring stock markets globally (Denning, 2018).

The analysis of this article gives room for policy interventions to curb wage stagnation in the United States. Relations between suppliers and buyers should be considered when establishing strategies to reduce inequality and raise wages. Policy discussions and implementations on this issue have focused on macroeconomic or individual level solutions. For instance, in 1920, the U.S. textile workers union’s called for dominant apparel retailers to sign contracts, which promoted higher wages among smaller suppliers. The National Recovery Act mandated the restructuring of steel purchasing contracts to improve the working conditions of smaller steel producers (Wilmer, 2018). Furthermore, the Davis Bacon Act (1931) worked to ensure that the local wages in the construction industry are not undermined by the federal government’s buying power. This analysis reveals that the history of the effect of buyer-supplier relations can have a positive outcome if it could be considered when establishing policies. Future research should also examine how antitrust legislation impacts buyer power. The law enforcement has, since the 1980s, weakened, which has resulted in corporate consolidation (Wilmers, 2018). Wilmers’ article was extensively research, as illustrated by his incorporation of various works of trusted scholars. His theoretic conceptualization explains the topic clearly and the analysis is carefully and professionally done to make readers understand the content. Lastly, the findings of the study are accurately presented and the logic is comprehensively interpreted. Initially, I assumed that with the soaring stock markets, the United States has started experiencing wage growth. Wilmer’s work, which is accompanied by valid proof, has made me realize that the country is still facing wage stagnation especially among middle-skilled workers.

 

References

Denning, S. (2018, July 26). How to fix stagnant wages: Dump the world’s dumbest idea. Forbes. Retrieved from https://www.forbes.com/sites/stevedenning/2018/07/26/how-to-fix-stagnant-wages-dump-the-worlds-dumbest-idea/#2501228b1abc

Wilmers, N. (2018). Wage stagnation and buyer power: How buyer-supplier relations affect U.S. workers’ wages, 1978 to 2014. The American Sociological Review, 83(2), 213-242. Retrieved from https://doi.org/10.1177/0003122418762441