21 January 2023

We Now Have a Number

A week ago, I mentioned that the FDA had intends to ban non-compete clauses.

Well, someone has run the numbers, and it looks like this rule could increase wages by about $300 billion.

According to the FTC, there are about 30 million people covered by these agreements, which means that the pay difference would be about $10,000 each for those effected.

That is not chump change:

“You’re not really free if you don’t have the right to switch jobs or choose what to do with your labor,” Lina Kahn, the chair of the Federal Trade Commission, wrote earlier this month. But thanks to noncompete clauses that ban employees from working for similar businesses if they leave their jobs, that is the reality for millions of Americans. Under Khan, the FTC wants to eliminate that practice. On January 5, the agency, which is responsible for regulating businesses so they don’t engage in unfair and uncompetitive practices, announced a proposed rule that would make noncompete clauses illegal.

“Non-union workers have one source of power with respect to their employers, and it is their ability to quit,” said Heidi Shierholz, president of the Economic Policy Institute. “The only thing they have is the ability to say, ‘If you’re not paying a competitive wage, I’m just going to go somewhere else.’” Even if they don’t leave, it often takes a credible outside offer to get an employer give someone a raise.

Noncompetes erase workers’ power to improve their incomes, then, by removing the best card they can play. Having that power back would be significant. The FTC has estimated that its proposed ban, if enacted, will raise wages by nearly $300 billion a year. Evan Starr, an associate professor at the University of Maryland who has studied noncompetes, argues that this is a low estimate, because when firms can no longer game a patchwork of state laws to keep using them, the impact may be even larger than past studies have found.

Non-compete agreements are wage theft.  That's their effect, and that is there purpose.


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