Though ‘increased worker leverage from a tight labor market’ frequently is part of the national narrative surrounding the COVID-era economy, a study recently announced by the U.S. Treasury asserts anti-competitive labor practices have forced down wages and worsened working conditions, costing workers 15 to 25 percent of what they might otherwise earn.
Biden Administration officials, in a roundtable discussion, subsequently outlined steps and rationale for reforms in response to the report, “The State of Labor Market Competition.” The work cites and draws from 10 papers on noncompete and non-disclosure agreements (NDAs) by Maryland Smith’s Evan Starr.
Conventional thinking on labor markets is that they are competitive – “that if Firm A offers a little more than Firm B then all the workers would move to Firm A,” says Starr, associate professor of management and organization for the University of Maryland’s Robert H. Smith School of Business. “But here, the Biden Administration is responding to a wave of research over the last 20 years – and moreso recently – on anti-competitive practices by employers that, in effect, show that the real world is very different.”
Those practices, as identified in the report, include noncompete agreements prohibiting an employee moving to a competitor, nondisclosure agreements that bar employee information-sharing about wages and working conditions, outsourcing work to contractors which reduces options for low-wage workers, and mergers and acquisitions which hinder employees from seeking better jobs.
Starr’s noncompetes research stream feeds the Treasury’s study in terms of how these agreements give firms power over workers, as well as how recently adopted state-level laws to regulate these contracts have affected workers and firms.
Starr, with colleague Matthew Johnson of Duke University, recently described this landscape in testimony to Connecticut lawmakers mulling legislation to restrict noncompetes – summarized here:
- After Oregon banned noncompetes for low-wage workers in 2008, hourly-worker wages rose by 6% five years after the ban, while job-to-job mobility rose by 17%.
- Similarly, after Hawaii banned noncompetes in 2015 for only high-tech workers, quarterly earnings for new hires increased by 4% and job mobility rose by 11%.
- A broad, nationally representative study estimated that if all states banned noncompetes, the average worker’s earnings would increase by 8.5%
- This research also tends to find that the enforcement of noncompetes has particularly deleterious effects on the earnings of women and racial minorities.
- Other studies also find that where it is easier to enforce noncompetes, entrepreneurship rates are lower—especially for women—and businesses struggle to hire.
Regarding nondisclosure agreements, the Treasury report taps Starr’s “Externalities from Silence: Non-Disclosure Agreements Distort Firm Reputation” paper and related Washington Post op-ed in calling out the practice as a means for firms to hide negative information. “This can make it difficult for prospective employees to really know what it’s like to work for a given company,” Starr said. A strong example, he adds, is Harvey Weinstein’s use of NDAs working to perpetuate sexual harassment cases, as such agreements concealed information about what had happened to predecessors.
From his noncompetes research stream, the papers co-authored by Starr cited in the report are:
- “The Use, Abuse, and Enforceability of Non-Compete and No-Poach Agreements: A Brief Review of the Theory, Evidence, and Recent Reform Efforts” – Economic Innovation Group
- “Bundling Employment Restrictions and Value Capture from Employees” – working paper
- “Noncompete agreements in the US labor force.” – The Journal of Law and Economics
- “Locked in? The enforceability of covenants not to compete and the careers of high-tech workers.” – Journal of Human Resources.
- “Screening Spinouts? How Noncompete Enforceability Affects the Creation, Growth, and Survival of New Firms” – Management Science
- “The Behavioral Effects of (Unenforceable) Contracts” – The Journal of Law, Economics, and Organization
- “Understanding Noncompetition Agreements: The 2014 Noncompete Survey Project” – Michigan State Law Review
- “Low-Wage Workers and the Enforceability of Noncompete Agreements.” – Management Science
- “Non-Disclosure Agreements and Externalities from Silence.” – UpJohn Institute working paper
More broadly, this latest report by the Treasury dovetails on previous papers addressing occupational licensing and noncompetes, under the Obama Administration, Starr notes. And the Council of Economic Advisors in 2016 issued a report on Monopsony power.
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