How Antitrust Failed Workers by Eric A. Posner

Author:Eric A. Posner [Posner, Eric A.]
Language: eng
Format: epub, pdf
Tags: law, General, Antitrust, Labor & Employment, Taxation
ISBN: 9780197507629
Google: oHs_EAAAQBAJ
Publisher: Oxford University Press
Published: 2021-11-15T00:29:23.572551+00:00

6.4. Antitrust and Noncompetes

In a competitive market, wages should increase when noncompetes are added to employment contracts. Because the employee’s mobility is reduced, the employer must compensate her. As Rubin and Shedd put it, “If an employer places a restrictive clause in an employment contract, he will reduce the supply of potential employees and thus pay a higher wage to those persons who nonetheless choose to work for him.”60 The empirical research contradicts this claim: wages generally decline rather than increase in states that enforce or strictly enforce noncompetes.

The most plausible explanation for this finding is that labor markets are frequently not competitive, as this book has argued. Noncompetes can further reduce labor market competition by deterring entry. Recall from the hospital example that a firm can deter entry by requiring its employees to sign noncompetes, even compensating them if necessary. This strategy will not work if the labor market is competitive. If many employers exist, then they will all benefit from entry deterrence, but that also means that they will be inclined to free-ride on each other rather than incur the cost of paying a worker to sign a noncompete. But in fact, most labor markets are highly concentrated. And even when labor markets are relatively competitive, so that noncompetes are associated with wage premiums when they are initially introduced, the spread of noncompetes may eventually cause market concentration by deterring entry, and ultimately cause harm in aggregate.

None of this would matter much if noncompetes were used infrequently. But as Starr and his colleagues have demonstrated, noncompetes are extremely common. The authors found that 38.1% of employees in the U.S. labor market have signed a noncompete at some point in their lives, and 18.1% were subject to a noncompete agreement in 2014.61 Among lower-income workers, 34.7% of employees without bachelor’s degrees were subject to noncompetes at some point in their lives, compared to 45.4% of employees with at least a bachelor’s degree.62 Another survey, using a different methodology, found that between 27.8 and 46.5% of the private-sector workforce is subject to a noncompete.63 Widespread, indiscriminate use of noncompetes of this sort likely erects entry barriers.

When a plaintiff alleges that a noncompete violates antitrust law, the first step should be to identify all the markets in which the noncompete may cause harm. As we have seen, there are three types of markets: direct labor markets, indirect labor markets, and product markets.

The direct labor market, which I discussed in the previous section, is the market for the labor of the worker who is subject to the noncompete. Suppose, for example, that a primary care physician in Toledo is subject to a noncompete. The direct labor market is primary care physicians in Toledo. The noncompete reduces competition in this labor market by preventing an outside employer from hiring away this physician.

The indirect labor market is any other market (or markets) for the labor of workers who may not be hired because a firm cannot obtain economies of scale as a result of the noncompete.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.