The Government Relaxed Protections for Working-Class Wealth and Small Businesses

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Summary

Beginning in the late 1970s and accelerating during the 1980s, many federal and state policies shifted toward less government regulation of markets. Taxes on higher incomes and capital were reduced, financial markets were deregulated, antitrust enforcement became less aggressive, unions lost influence, and many industries experienced fewer government restrictions.

Supporters argued that these changes would increase investment, innovation, and economic growth. Critics argue that they also weakened protections that had helped workers accumulate wealth and enabled small businesses to compete with larger firms. Many economists believe these policy changes contributed to rising income and wealth inequality, greater corporate concentration, slower wage growth for many workers, and reduced economic mobility, although they disagree about the size of each policy’s effect.

What Changed?

Less Aggressive Antitrust Enforcement

For much of the twentieth century, the federal government actively challenged monopolies and mergers that threatened competition.

Beginning in the late 1970s, antitrust policy increasingly focused primarily on whether mergers raised consumer prices, rather than on broader concerns such as excessive corporate concentration or harm to workers and small businesses.

This allowed many industries to become more concentrated through mergers and acquisitions.

Research using Census Bureau data has found that stronger antitrust enforcement is associated with higher employment, higher wages, and more new business formation.  

Declining Worker Bargaining Power

Workers traditionally increased their bargaining power through labor unions and competition among employers.

Over several decades:

• private-sector union membership declined substantially,
• fewer companies were doing the hiring,
• some employers used noncompete agreements and similar restrictions,
• wage growth slowed relative to productivity for many workers.

Government reports note that restrictions such as noncompete agreements can reduce worker mobility and may lower wages.  

Financial Deregulation

Several laws relaxed regulations on banks and financial institutions.

Supporters argued that fewer regulations would increase lending and economic efficiency.

Critics argue that increased financial risk contributed to the financial crisis of 2007–2009, which destroyed trillions of dollars in household wealth, especially through falling home values and retirement accounts.

Working-class households generally had fewer financial resources with which to recover.

Tax Changes

Top marginal income tax rates and taxes on investment income were reduced substantially from their post-World War II levels.

Supporters argue these changes encouraged investment and entrepreneurship.

Critics argue they disproportionately benefited high-income households and contributed to growing wealth concentration.

Consequences for Working-Class Wealth

Slower Wage Growth

Economic output continued to rise over recent decades.

However, many economists have noted that wages grew more slowly than overall productivity, meaning a larger share of economic gains flowed to capital owners and higher-income households.

Greater Wealth Inequality

Stocks, businesses, and investment assets appreciated rapidly.

Because wealthier households own most financial assets, they benefited disproportionately from rising asset prices.

Workers whose wealth consisted mainly of wages and home equity generally accumulated wealth more slowly.

Reduced Economic Mobility

When wealth becomes concentrated, affluent families can more easily invest in:

• education,
• housing,
• businesses,
• political influence,
• inheritances.

Families with fewer assets often find it more difficult to build wealth across generations.

Consequences for Small Businesses

Harder Competition Against Large Corporations

Large firms often possess advantages that small businesses cannot easily match:

• economies of scale,
• nationwide purchasing power,
• sophisticated logistics,
• legal resources,
• marketing budgets,
• easier access to financing.

As industries become more concentrated, these advantages can make it harder for new firms to enter markets.

Reduced Local Competition

When local businesses disappear:

• consumers have fewer choices,
• local ownership declines,
• profits are more likely to leave the community,
• entrepreneurial opportunities shrink.

Research finds that stronger antitrust enforcement is associated with increased business formation.  

Labor Market Concentration

When only a few employers dominate hiring in a region or occupation, workers often have fewer employment alternatives.

Economists describe this as labor market power or monopsony.

Greater employer concentration may reduce wage growth and worker bargaining power.  

Arguments in Favor of Deregulation

Supporters argue these policy changes:

• encouraged entrepreneurship,
• increased investment,
• lowered some consumer prices,
• improved efficiency,
• promoted technological innovation,
• helped make American companies globally competitive.

Many economists believe these benefits were real, even while acknowledging that some costs accompanied them.

Arguments for Stronger Protections

Those advocating stronger government protections argue that markets work best when competition remains vigorous.

They support measures such as:

• stronger antitrust enforcement,
• preventing anti-competitive mergers,
• protecting worker mobility,
• encouraging competitive labor markets,
• supporting small business formation,
• preventing monopolistic practices.

The Department of Justice and Federal Trade Commission state that competition among employers benefits workers through higher wages, better benefits, and greater opportunities, while competition among businesses promotes innovation and new business formation.  

Conclusion

Over the past several decades, government policies generally shifted toward lighter regulation of markets, lower taxes on higher incomes, and less aggressive antitrust enforcement. These changes coincided with significant economic growth and innovation, but also with rising wealth inequality and increasing corporate concentration.

There is broad agreement that market concentration can reduce competition and harm workers and small businesses. There is less agreement about exactly how much each policy contributed to today’s levels of inequality or which reforms would best balance economic efficiency with broad prosperity. The continuing policy debate centers on how to preserve the benefits of competitive markets while preventing excessive concentrations of economic power.

Printable References

1. U.S. Census Bureau. Antitrust Enforcement Increases Economic Activity. Working Paper CES-WP-23-50 (2023).  
2. National Bureau of Economic Research. Antitrust Enforcement Increases Economic Activity. Working Paper 31597 (2023).  
3. U.S. Government Accountability Office. Noncompete Agreements: Use is Widespread to Protect Business’ Stated Interests, Restricts Job Mobility, and May Affect Wages. GAO-23-103785 (2023).  
4. U.S. Department of Justice. Justice Department and Federal Trade Commission Issue Antitrust Guidelines on Business Practices that Impact Workers. January 16, 2025.  
5. Federal Trade Commission. FTC and DOJ Jointly Issue Antitrust Guidelines on Business Practices that Impact Workers. January 2025.  
6. Posner, Eric A.; Naidu, Suresh; Weyl, Glen. Antitrust Remedies for Labor Market Power. Harvard Law Review 132 (2018).  
7. Berger, David; Herkenhoff, Kyle; Mongey, Simon. Labor Market Power: From Micro Evidence to Macro Consequences. Journal of Economic Perspectives 40(1), 2026.  

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