The intuition here is the following; there are many workers who seek jobs. There are a few large employers (such as KFC Franchises) who sign non-compete clauses so that branches of the same firm do not compete against each other for talent. Such side deals mean that the necessary conditions for perfect competition do not hold and workers gain less in terms of higher wages when productivity rises. Why? There are fewer bidders in the labor market seeking talent as firms agree "not to compete".
How does capitalism respond to this dynamic?
I can think of three margins of adjustment here.
1. Uber and the gig economy
2. migrating to a city featuring more firm competition for workers
3. new firms seeing that wages are low and entering to compete for talent
For the new generation of "Non-UChicago" labor economists to be correct about their claim that labor market power is driving rising inequality, they need to be able to dismiss these 3 margins.
1. Uber --- Uber is a stand in for the "gig economy". One can always opt out and be self employed. Yes, I understand that some people do not have a car but Uber drivers earn $21 an hour (see Figure 1). Yes, one must subtract out fuel costs. If you drive 35 miles in one hour and drive a Prius, you will pay a little less than $3 in gas. In cities featuring a demand for transit services, Uber driver opportunities await. The "gig economy" is an extension of home production but now rather than making a flow of services for yourself --- you sell them to others. This opportunity cost of working in the monopsony sector is always available.
2. Young people choose which local labor market to work in. If a local labor market features stagnant wages over the life cycle, then people will only remain if rents are very low. If rents are low, then real local wages are higher than the labor economists claim they are (this is Enrico Moretti's real wage inequality AEJ logic but in reverse!). The labor economists have to think about the urban economics here. As Enrico taught us, you do not want to compare nominal earnings across locations. San Fran housing prices can be 10 times the price of Cleveland.
3. New firm entry -- the labor economists need to team up with the IO economists. Davis and Haltiwanger wrote several papers on "new firms" and market entry. If the incumbent "big firms" are engaging in labor market collusion, then why aren't more small firms moving in to hire the "cheap workers"? I conjecture that regulations limiting product entry would create the wedge here. These entry limits on new firms vary across states and localities.
So, in equilibrium economics --- if one group is being paid less than its marginal product such people are not passive victims. Capitalism will evolve as the 3 margins I have discussed highlight. Urban economics is key in all 3 of my margins of adjustment.
I could add more margins of adjustment. If young workers anticipate that low skill labor demand is not increasing (due to robots and monopsony), they may invest more in their skills to avoid being trapped in this sector.
The new labor economists need to discuss the general equilibrium implications of their models.
UPDATE: Monopsony will be more costly for workers if there is significant industry specific human capital. Scholars such as Altonji, Topel and Neal have studied this issue. But, this raises the issue of --- moving forward -- will young workers continue to make such investments if they know they will be "stranded" in the near future. Legacy capital (i.e that you have invested in being an expert in a sector that now pays you less per unit of skill by using market power to exploit you) is interesting but represents a transition issue.