The current federal administration clearly wants to increase competition in the labor market. This follows efforts by the Obama administration in 2015 to address stagnant wage growth and rising income inequality. Any factor that artificially restricts competition by limiting worker’s choices, restricting their mobility or creating barriers to changing jobs weakens worker’s bargaining position and may force them to accept lower compensation or inferior working conditions. Monopsonies, non-compete agreements and antitrust prosecution are all on the Biden to-do list.
Monopolies occur when companies have outsized market power, so they can set the price of a good or service at a level higher than if there was fair competition. Monopsonies occur when companies with power in labor markets can set the wages they pay at lower levels and hire fewer workers than if there was strong competition. A study by Ioana Marinescu, an economist at the University of Pennsylvania, analyzed data on 8000 specific labor markets and found when a job market was heavily concentrated among a few employers, it resulted in a 5% to 17% decline in wages. Marshall Steinbaum, Marinescu’s co-author, said, “We show that labor market concentration, by occupation and geography, exerts its own, independent, negative effect on wages, and thus warrants scrutiny under antitrust law – over and above whatever the consumer welfare standard might allow.”
Monopsony power in labor markets has not been a focus of antitrust policy, but that may be changing. In the past the Department of Justice has said that it will criminally investigate allegations that employers have agreed among themselves on employee compensation or not to solicit or hire one another’s employees. In 2014, eight Silicon Valley employers settled a civil class action suit for $415 million for allegedly colluding to suppress the wages of programmers and engineers. Specifically this suit pointed to evidence of “no-poaching” arrangements in which the firms agreed not to engage in competitive recruiting of each other’s workforces. Past Assistant Attorney General Renata Hesse said, “HR professionals need to understand that these violations can lead to severe consequences, including criminal prosecution.”
One in five workers is bound by a non-compete agreement including 14% of workers making less than $40,000 per year. States that strictly enforce non-compete agreements have a 10% lower average wage for middle-aged workers than states that do not. The Biden administration is encouraging the Federal Trade Commission (FTC) to ban or limit non-compete agreements. Because most limits on non-competes are at the state level, it is unclear if the FTC has the authority to ban or limit these agreements.
California, North Dakota, Oklahoma and DC have broad bans on non-compete agreements, but in most other states non-competes are legal with some restrictions. Most states limit the period of a post-employment non-compete to two years and it is common to have a rule which says that “undue hardship” must not be placed on the employee. Some states have no restrictions whatsoever, but the courts usually side with employees when non-competes are too broad. Non-competes do seem to be falling out of favor as courts are more hostile to them and encouraging competition with a focus on retaining employees is good for the economy as well as the individual.
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