Alan B. Krueger and Eric A. Posner
POLICY PROPOSAL 2018-05 | FEBRUARY 2018
A Proposal for Protecting Low‑Income Workers
from Monopsony and Collusion
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MISSION STATEMENT
The Hamilton Project • Brookings 1
A Proposal for Protecting Low‑Income Workers
from Monopsony and Collusion
Alan B. Krueger
Princeton University
Eric A. Posner
The University of Chicago Law School
is policy proposal is a proposal from the author(s). As emphasized in e Hamilton Project’s original
strategy paper, the Project was designed in part to provide a forum for leading thinkers across the nation to
put forward innovative and potentially important economic policy ideas that share the Project’s broad goals
of promoting economic growth, broad-based participation in growth, and economic security. e author(s)
are invited to express their own ideas in policy papers, whether or not the Project’s sta or advisory council
agrees with the specic proposals. is policy paper is oered in that spirit.
FEBRUARY 2018
2 A Proposal for Protecting Low-Income Workers from Monopsony and Collusion
Abstract
New evidence that labor markets are being rendered uncompetitive by large employers suggests that the time has come to
strengthen legal protections for workers. Labor market collusion or monopsonization—the exercise of employer market power
in labor markets—may contribute to wage stagnation, rising inequality, and declining productivity in the American economy,
trends which have hit low-income workers especially hard. To address these problems, we propose three reforms. First, the federal
government should enhance scrutiny of mergers for adverse labor market eects. Second, state governments should ban non-
compete covenants that bind low-wage workers. ird, no-poaching arrangements among establishments that belong to a single
franchise company should be prohibited.
4 A Proposal for Protecting Low-Income Workers from Monopsony and Collusion
Introduction
I
n recent decades, rising income inequality and stagnating
wages among all but the highest-paid workers have raised
alarms about the health of the U.S. labor market and its
capacity to provide workers with the means to adequately
support themselves. Alongside the familiar explanations,
including automation and foreign competition, a new and
perhaps surprising one has emerged: monopsonization of, or
collusion in, labor markets. As rms have grown in size, they
have become capable of dominating local labor markets—a
phenomenon referred to as monopsonization—and of using
their market power to suppress wages.
1
ere is also evidence
that some rms have colluded, entering into no-poaching and
similar arrangements that restrict workers’ choices among
employers. Various impediments to perfect competition,
including reluctance among many workers to relocate to
change jobs, have added to this problem.
e problem has been serious enough to draw the attention of the
U.S. government. In 2016 the White House and the Department
of Treasury issued reports critical of non-compete agreements
(U.S. Department of the Treasury 2016; White House 2016). In
the same year, the Department of Justice (DOJ) and the Federal
Trade Commission (FTC) together issued a guidance document
advising human resource professionals that it is illegal under
the antitrust laws for rival rms to agree not to hire each other’s
workers or to compete on wages (DOJ and FTC 2016). DOJ has
brought lawsuits against rms that have allegedly engaged in
such arrangements, including a hospital association in Arizona,
and technology companies, including Apple and Google. e
FTC has brought cases against rms that tried to collude in the
labor market for nurses and fashion models (FTC 1995).
2
In
2017 DOJ noted that it was conducting several investigations of
labor market collusion that might lead to criminal prosecutions
(Nylen 2017).
But given the scale of the problem and burdens of litigation, ad
hoc legal interventions based on existing antitrust law will not
be enough to solve it. To prevail in litigation, plaintis must
oer proof about complex economic phenomena, such as the
scope of markets and the relationship between wages and
market power, which can be dicult to evaluate. Furthermore,
antitrust authorities have limited resources. For these reasons,
new approaches are needed for protecting workers from wage
suppression and similar anticompetitive behavior.
We focus on three types of business behavior that have
contributed to the current problems in the labor market. First,
a combination of several decades of mergers and growth in
industries where network eects tilt toward one dominant rm
have created massive employers who apparently enjoy market
power in various labor markets (Autor et al. 2017). While it
is illegal for rms to merge for the purpose of dominating a
labor market, the government does not focus on labor market
eects when it screens mergers under the Horizontal Merger
Guidelines (DOJ and FTC 2010). We propose a beefed-up
screening procedure that alerts regulators of the risk that a
merger will create anticompetitive eects in labor markets.
Second, it has recently become clear that rms use non-
compete agreements to suppress labor market competition
among low-wage workers. In a non-compete agreement (also
called a covenant not to compete), the worker agrees that he
or she will not work for competing employers for a period of
time aer termination. In principle, a non-compete agreement
could violate antitrust law if it is used to enhance or exploit
market power, but non-compete agreements are almost never
the subject of antitrust litigation.
ere are limits to the enforceability of non-compete
agreements in the common law. If a non-compete agreement is
not “reasonable” in the light of legitimate business goals—such
as recovering the cost of training or preventing the disclosure
of trade secrets—then a court will refuse to enforce it.
3
e
practical eect of this rule is that if a worker knows his or her
legal rights, or can aord a lawyer to explain them and defend
him or her in court, then the non-compete agreement may not
be harmful, and could enhance eciency.
3
For example, the
risk of turnover can result in insucient investment in rm-
specic training. But with non-competes a worker and rm
can jointly reach a bargain in which the rm pays the cost of
industry-specic training and shares some of the return from
that investment in exchange for the worker agreeing to refrain
from moving to another rm in the industry. e problem is
that, typically, only high-level executives and professionals can
aord a lawyer to review such agreements and ensure that the
worker’s interests are fully represented. And even in these cases,
there is a concern that in “thin” labor markets for critical talent,
an employer can use non-compete agreements to bind workers
and discourage competitors from entering the market because
The Hamilton Project • Brookings 5
they will face a scarcity of available labor. Many employers use
non-competes for low-wage jobs (Starr, Prescott, and Bishara
2017), where workers do not know their rights, cannot aord
lawyers, receive little training, and are susceptible to threats
from their former employers. Accordingly, we propose that
non-compete agreements involving low-wage workers be
banned or heavily restricted. A handful of states have recently
been considering such actions.
ird, new evidence suggests that franchise companies have
used no-poaching agreements to suppress labor market
competition. In a no-poaching agreement, two or more
employers agree that they will not hire each other’s employees.
When these agreements are made between independent
companies, they clearly run afoul of the antitrust laws, as
DOJ and FTC guidance makes clear. However, in recent years
no-poaching agreements have increasingly been included in
franchisors’ contracts with their franchisees, where antitrust
law is harder to enforce. When a franchisor requires the
dierent franchisees within its chain not to poach each other’s
workers, a claim can be made that the antitrust laws do not
apply because the rules are internal to a single organization,
while antitrust laws apply to the relationships among
independent rms. However, if more than one franchisee
exists in a single labor market, and those franchisees are
collectively a dominant employer in that labor market, the
no-poaching agreement is anticompetitive, and will tend to
suppress the wages of workers. We argue that no-poaching
agreements in franchises should be banned.
6 A Proposal for Protecting Low-Income Workers from Monopsony and Collusion
The Challenge
THE ECONOMICS OF LABOR MARKET
MONOPSONIZATION AND COLLUSION
Under perfect competition, workers are paid the value of
their contribution to output. A perfectly competitive labor
market requires that workers can move freely to seek the
most desirable opportunities for which they are qualied, and
that neither employers nor employees have the ability to set
pay. If employers have market power, however, they can pay
workers less than the value of their contribution to output.
e Joan Robinson (1969) variant of monopsony occurs when
there is a single employer in a labor market. In this situation,
the employer faces the market supply curve for labor, and
must pay a higher wage to hire additional labor. e prot-
maximizing decision for such a monopsonist is to hire less
than the quantity of labor that would be hired under perfect
competition, and pay workers below the value of marginal
product of the last worker hired. A monopsonist makes do
with unlled jobs, which typically appear as vacancies; it is
unable to nd workers at the low wages it oers and unwilling
to raise pay to attract more workers.
Burdett and Mortenson (1998), Manning (2003), and others
show that a similar situation arises even if there are many small
employers competing for labor in an otherwise competitive
market, to the extent that labor market frictions—for example,
from turnover and recruitment costs—cause employers to
face a rising cost of labor.
ese forms of monopsony power arise by natural forces, and
are not a legal cause of action, much as a rm that achieves
monopoly pricing power in the product market because of scale
economies is not in violation of antitrust laws. Historically,
labor unions played a greater role in counterbalancing such
monopsony power, but with only 7 percent of private sector
workers unionized, unions play a much smaller role today.
Employers can exert monopsony power through deliberate
means, however, by restricting competition for labor or by
colluding with other employers to suppress pay or benets
below the competitive level. ese cases are of much greater
concern for the law. e notion that employers have an interest
in manipulating the labor market and restricting competition is
hardly new. In e Wealth of Nations, for example, Adam Smith
(1776, 81) observed, “[Employers] are always and everywhere in
a sort of tacit, but constant and uniform combination, not to
raise the wages of labour above their actual rate.” If employers
act in concert to suppress wages below the prevailing level,
then they jointly act as a monopsonist, which reduces pay
and employment for workers. Likewise, if employers restrict
their employees’ outside options by pressuring or deceiving
them to sign non-compete clauses, they can reduce worker
mobility and suppress wages below the competitive level. If a
labor market is already concentrated, non-compete agreements
between incumbent rms and workers may deter new rms
from entering the market and bidding up wages by depriving
those rms of a ready source of labor. And agreements among
employers to not hire or recruit from other employers—so-
called no-poaching agreements—are a form of collusive
behavior that restricts competition and suppresses pay and
employment opportunities.
EVIDENCE
Collusion and Monopsonization in the Labor Market
Until recently economists assumed that labor markets are
fairly competitive. e company towns of the past are long
gone, and the vast majority of workers live in urban areas
where employers are plentiful. But recent events—including
agreements among technology companies not to poach
engineers and among hospitals not to poach nurses—have led
many economists and government ocials to question this
assumption (Council of Economic Advisers [CEA] 2016). Of
course, such cases are hardly new, but legal scrutiny of them
remains relatively rare. We have found fewer than two dozen
cases since 2000 where courts have considered allegations of
improper use of labor market monopsony power or collusion,
most of them involving specialized settings such as sports
leagues.
5
However, the most powerful evidence for increased monopsony
power relates to broad changes in the labor market. CEA
(2016) provides a thorough summary of evidence regarding
monopsony power in the labor market. Among the evidence
that CEA cites are these: (1) Firm concentration has increased
in recent years. (2) Labor market dynamism and geographic
mobility have trended down in recent decades, enabling
noncompetitive wage dierentials to persist with less external
pressure from worker mobility. (3) Other forces that tend to
The Hamilton Project • Brookings 7
counteract monopsony power and collusion are weaker than
has historically been the case in the United States, due to the
decline in the real value of the minimum wage and the decline
in the fraction of workers represented by labor unions. (4) And,
in the current recovery, wage growth has not been stronger in
industries that have experienced greater job openings. Next
we provide evidence on two types of contractual practices that
support employer monopsony power: non-compete agreements
and no-poaching agreements.
Non-Compete Agreements
Non-compete agreements are contracts or clauses in contracts
that prohibit an employee from working for a competitor aer
the employee separates from the employer. In an employment
contract, a non-compete clause may prohibit the employee
from working for a rival rm when employment terminates
(i.e., the employee quits and/or is red). An employee might
also sign a non-compete agreement at the time of termination
in return for consideration such as money. A typical non-
compete species the relevant industry in which the employee
is prohibited from nding employment, the time period
during which the noncompetition obligation remains in eect,
and the geographic scope of the noncompetition obligation.
For example, a non-compete for a salesperson who specializes
in business soware might specify that the person may not
work as a salesperson for rms that sell business soware, for
a period of one year, and in the area in which the employer
operates, such as a county or state. e scope of non-compete
clauses varies signicantly from industry to industry, and even
within industries, and from place to place. Some are written
narrowly and some are written broadly.
Until recently, academic and policy discussion about non-
competes presumed that they were used only for high-skill
workers. But in 2014 it was revealed that Jimmy John’s, a fast-
food franchise, required low-level employees to sign contracts
with non-competes that prohibited them from taking jobs at
any business that obtained more than 10 percent of its revenue
from “selling submarine, hero-type, deli-style, pita and/or
wrapped or rolled sandwiches” within two (later extended
to three) miles of any franchise, anywhere in the United
States (Jamieson 2014). e non-compete covenant extended
for two years. Its eect would have been to prevent a worker
from obtaining a new job as a sandwich maker in large areas,
including the entire city of Chicago.
Anecdotal evidence suggests that Jimmy John’s practice—
since discontinued—is not uncommon (Dougherty 2017a).
And survey data reported in a recent paper by Starr, Prescott,
and Bishara (2017) indicate that 12 percent of low-income
workers—those lacking a college education with incomes less
than $40,000 per year—were subject to non-competes in 2014.
Over all income levels, Starr, Prescott, and Bishara estimate
that one in ve workers was bound by a non-compete clause.
To supplement these ndings, we contracted with Survey
Sampling Inc. (SSI) to conduct a short internet survey of
919 workers in February 2017 to assess the extent to which
workers are covered by non-compete clauses. Aer deleting
FIGURE 1.
Share of Workers Covered by a Non‑Compete Agreement in Current or Former Job, by Weekly
Earnings and Education
Source: Authors’ calculations based on SSI survey; see text.
Note: The length of the error bars indicate the standard errors of the respective estimates.
0
5
10
15
20
25
30
35
Below median earnings Above median earnings High school or less Postsecondary education
Percent of workers
8 A Proposal for Protecting Low-Income Workers from Monopsony and Collusion
responses by self-employed individuals, we have a sample of
795 employees. We derived sampling weights for respondents
based on their income, race, sex, education, and age to make
the weighted sample representative of the U.S. workforce.
Specically, workers were asked, “Does your employment
relationship restrict you in any way from taking another job,
such as through a non-compete clause or no-raid pact?” If
they answered in the armative, they were asked whether a
non-compete clause, no-raid pact, or other arrangement was
the source of the restriction.
In the weighted sample, 15.5 percent of workers responded they
were currently covered by a non-compete clause. is gure is
similar to Starr, Bishara, and Prescott’s (2017) estimate before
they made an adjustment for underreporting. e percentage of
workers who said they were covered by a non-compete clause was
slightly higher for those with a high school diploma or less (17.5
percent) than for workers with post–high school education (14.6
percent), on average.
For those who responded that their employment relationship
does not restrict them in any way from taking another
job, we asked, “Have you ever worked for a company that
restricted where you could work aer you le that company
because of a non-compete clause or some other reason?”
Taking into account previous employment as well as current
employment, 24.5 percent of the workforce is bound by a
non-compete restriction on their current job, or was bound
by a non-compete from a previous job. Figure 1 displays the
proportion of workers who are restricted by a non-compete
agreement in their current job or have been so restricted in
a former job, disaggregated by earnings (above or below the
median weekly earnings) and education (high school or less
versus some postsecondary education or more). As one would
expect, higher-income workers are more likely to be covered
by non-compete agreements, but a remarkably high 21 percent
of workers who earn less than the median salary are currently
or have been restricted by a non-compete agreement. And
workers with a high school diploma or less are almost equally
likely to be covered by a non-compete agreement in a current or
former job as are workers with some postsecondary education.
Franchise No-Poaching Agreements
Like non-competes, no-poaching agreements went unnoticed
by many labor market observers until recently. ere was little
evidence that companies used them, and in any event no one
challenged that they were illegal. But in 2017 employees of
McDonald’s sued the company under the antitrust laws for
subjecting its franchisees to a no-poaching arrangement.
6
Since at least 1987 until early in 2017, McDonald’s has included
the following no-poaching clause in its standard franchise
contract:
Interference With Employment Relations of Others.
During the term of this Franchise, Franchisee shall not
employ or seek to employ any person who is at the time
employed by McDonald’s, any of its subsidiaries, or by
any person who is at the time operating a McDonald’s
restaurant or otherwise induce, directly or indirectly,
FIGURE 2.
Share of Major Franchise Companies with a No‑Poaching Clause, 1996 and 2016
Source: Based on data provided by FRANdata (frandata.com); and Krueger and Ashenfelter 2017.
1996 2016
Percent of major franchise companies
0
30
60
15
45
75
35.6%
53.3%
The Hamilton Project • Brookings 9
such person to leave such employment. is paragraph
14 shall not be violated if such person has le the employ
of any of the foregoing parties for a period in excess of
six (6) months.
7
is clause was dropped from McDonald’s franchise contract
in early 2017, around the time that CKE Restaurants Holdings
was sued for having a similar clause in its Carl’s Jr. franchise
contract.
By examining franchise disclosure documents for 156
franchisors with more than 500 franchise units operating
in the United States in 2016, Krueger and Ashenfelter (2017)
show that 56 percent of major franchisors have no-poaching
agreements in their franchise contracts. ey provide
an illustrative calculation indicating how no-poaching
agreements within franchisors can greatly increase the
eective Herndahl-Hirschman index—a measure of industry
concentration used to evaluate market competitiveness—and
create employer market power over workers. In essence, if all
units of a franchise chain act as if they are one company in
terms of hiring practices, then an otherwise competitive labor
market can become much more concentrated.
To determine whether this practice has increased or decreased
over time, we obtained franchise disclosure documents led in
1996 for the 45 largest franchisors in 2016 that were in operation
in 1996 from the same source used by Krueger and Ashenfelter
(2017). Figure 2 reports the share of these franchise chains with
a no-poaching agreement in 1996 and in 2016. Over the past
20 years the share of major franchise companies that included
a no-poaching covenant in their standard franchise agreement
increased from just over one-third to slightly more than half.
8
An example of a chain that added a no-poaching clause in the
past twenty years is the International House of Pancakes, which
currently requires the following of its franchisees:
Non-Solicitation. During the Term of this Agreement
and for one year following the expiration or termination
and each Assignment, Franchisee shall not, without
the prior written consent of Franchisor, directly or
indirectly: (a) employ or attempt to employ any person
who at that time is employed by Franchisor, an Aliate
of Franchisor, or any other Franchisee or area developer
of Franchisor, including, without limitation, any
manager or assistant manager; (b) employ or attempt
to employ any person who within six months prior
thereto had been employed by Franchisor, an Aliate
of Franchisor, or any other Franchisee or area developer
of Franchisor; or (c) induce or attempt to induce any
person to leave his or her employment with Franchisor,
an Aliate of Franchisor, or any franchisee or area
developer of Franchisor.
9
In all likelihood, the proliferation of no-poaching agreements
has increased franchise companies’ monopsony power over
workers in recent decades.
THE LIMITS OF THE LAW: WHY A NEW APPROACH IS
NEEDED
Collusion and Monopsonization
Labor market concentration poses a dicult challenge to
antitrust enforcement. A rm that enjoys monopsony power
over a labor market and uses that power to pay its workers
below the competitive rate is not liable under the antitrust
laws, as long as the rm did not take intentional actions to
obtain that power. For example, if a large factory dominates
the labor market of a small town because other factories in the
area have shut down, the factory owner is free to pay below-
market wages without violating antitrust laws.
In contrast, when rms achieve labor market power through
mergers or collusion—such as through no-poaching
agreements—they do violate the antitrust laws. Firms obtain
labor market power through merger when two employers
who compete for workers combine into a single entity. If the
labor market is already relatively concentrated or the rms
are large employers, the increase in labor market power may
be signicant. Firms can obtain market power even without
merging by agreeing to not compete over labor. ey can
do this in many ways—for example, agreeing not to hire
away each other’s workers, agreeing to draw from dierent
pools of labor, coordinating on wages and benets, sharing
information, and so on.
Firms that obtain labor market power in these ways violate
the antitrust laws. e problem lies in enforcement. Firms
accused of violating the antitrust laws can defend themselves
by arguing that apparently anticompetitive behavior allows
them to lower prices by exploiting economies of scale.
Anticompetitive behavior can result from hard-to-prove,
and not always illegal, tacit coordination rather than explicit
agreement. us, even when rms do not enter no-poaching
agreements, rms may be able to coordinate wages without
entering into explicit agreements, for example, through
sharing of information about compensation, or adopting
parallel practices of not raiding each other’s workforce (DOJ
and FTC 2016). When rms engage in these more ambiguous
types of activities, plaintis will have trouble persuading
courts that their actions are illegal.
An additional hurdle to antitrust enforcement is the cost
of bringing lawsuits. Individual employees will almost
never have the resources or incentives to sue employers for
antitrust violations because of the vast cost of an antitrust
suit along with the relatively small sums at stake. Private
wage suppression suits therefore require a class action, which
imposes considerable costs and risks on law rms. While the
10 A Proposal for Protecting Low-Income Workers from Monopsony and Collusion
government can bring such suits, and has in a few cases, it
faces a similar problem of limited resources and high risk. In
contrast, product-market antitrust claims are oen brought
by large rms that are harmed by the alleged anticompetitive
practices.
Non-Compete Agreements
Common Law
In the common law, courts make an exception to the principle
of freedom of contract and refuse to enforce non-compete
agreements that are “unreasonable.”
10
To determine whether
a non-compete clause is unreasonable, a court typically asks
whether the clause is broader than necessary to protect the
employer’s legitimate business interest. Accordingly, a court
might determine that the geographic scope of a non-compete
clause is too broad if the employee works in a much smaller
area, or the industry scope is too broad if not all employers
within the designated industry actually compete with the
employer in question.
Employers usually argue that the clause is needed to protect
trade secrets, such as client lists, or to protect their investment
in the employee, who may have received training. e worry
is that if employees are permitted to work for rivals of their
employers, then they will be able to transfer information to
those rivals, which would discourage employers from sharing
information with employees, force them to use elaborate
rewalls and other protections, or refuse to invest in trade
secrets in the rst place. Employers might also underinvest in
their employees if employees can take their new skills to rivals.
While the courts’ approach to non-compete agreements
may provide some protection to low-income workers, it is
plainly inadequate. First, employees frequently do not read
or understand employment agreements because they are long
and complex, and the workers do not have the means to hire
a lawyer to interpret the contract for them. Poorly educated
workers who can command only low wages are at a greater-
than-usual disadvantage. In some cases, employees may be
rst informed of the non-compete clause aer they begin work
or when they quit. Second, the remedy for an unreasonable
non-compete clause is generally either nonenforcement or
reformation of the clause so that it is less broad; the employer
is not penalized or forced to pay damages to the employee.
is means that employees threatened with a lawsuit if they
try to work for a rival rm will not be able to attract a lawyer
to defend them. Lawyers must be paid, and low-wage workers
cannot aord to pay lawyers; since they will not receive
damages, lawyers cannot be paid out of any recovery. Given
the frequency of the practice, employers appear to understand
that they face no sanction if they insert unenforceable non-
compete clauses in contracts even if the clauses enable the
employers to intimidate the employees. Finally, because of
the vagueness of the legal standard that governs non-compete
clauses, it is always possible that an employee will lose a case.
is will further deter an employee from seeking legal relief,
and a lawyer from helping him or her.
Another problem with the common law approach to
noncompetition agreements is that these agreements might
have signicant anticompetitive eects even when they
are permissible. Imagine that a monopsonistic employer
requires all employees to sign non-competes as a condition of
employment. e non-competes may be deemed reasonable
under the common law because of their limited scope and
duration, but nonetheless deter other employers from entering
the market for labor because they fear that they will not be
able to nd enough employees to run their businesses. From
a social standpoint, it may be optimal to prohibit such non-
competes because of their collective anticompetitive eect
even though they are individually reasonable.
Legislation
In most states, non-compete agreements are mainly governed
by the common law only. But in California, North Dakota, and
Oklahoma, non-competes are generally prohibited by statute.
11
In recent years several state legislatures, including those of
Hawaii, New Mexico, Oregon, and Utah, have considered or
passed legislation that puts limits on non-competes (Lohr
2016). Notably, in 2016 Illinois passed a law banning non-
competes for low-wage workers, dened as those who earn no
more than $13 per hour or the relevant legal minimum wage,
whichever is higher.
12
Maine, Maryland, Massachusetts, and New Hampshire are
currently considering legislation to restrict non-compete
clauses, particularly with respect to low-wage workers (Beck
2017; Quinton 2017). e bills vary greatly, but some of
them entail fairly sweeping changes. For example, one bill
being considered in Massachusetts tightens the common law
analysis of all non-compete agreements, while also prohibiting
their use for low-wage workers (nonexempt workers under
the Fair Labor Standards Act, who are lower-income and
paid on a wage basis). For all non-competes, the bill requires
employers to give workers notice of non-competes, to supply
additional consideration when non-competes are created aer
employment begins, to review the agreement with the worker
every three years, and to notify the worker of the agreement
at termination. It also tightens the common law limits on
duration, geographic scope, and industry scope.
13
Going in
the other direction, Idaho recently passed a law that makes
it more dicult for employees to challenge a non-compete
(Dougherty 2017b).
Overall, the legal regime is insucient to address the antitrust
problems posed by non-competes for several reasons. First,
the common law and much of the statutory law do not
address problems of market power in an adequate way. When
The Hamilton Project • Brookings 11
employers enjoy monopsony power, this type of law oers no
protection to workers who must either accept unfavorable
terms or do without wages. Second, the remedies are too weak.
Even when non-competes are illegal, the normal remedy is
simply nonenforcement. is means that employers have
nothing to lose from inserting non-competes into contracts.
Since employers may be able to deter workers from quitting
and nding new jobs in the same industry simply by pointing
out the existence of the clauses in the contracts, the law does
nothing to deter employers from using the clauses. ird,
while some states have taken strides to restrict non-competes
for low-wage workers, these types of agreements remain
lawful nearly everywhere. Fourth, while non-competes can
be challenged under the antitrust laws, which provide for
signicant remedies, defendants can oen avoid liability by
showing that the non-competes serve a reasonable business
purpose.
14
No-Poaching Agreements within Franchises
When rms are independent, no-poaching and related
agreements are clear violations of antitrust law.
15
Antitrust
law forbids independent rms from agreeing not to compete,
and in a no-poaching agreement rms agree not to compete
for workers.
However, no-poaching agreements remain common and
have grown in usage in franchise contracts, as we show
above. e dierence is that typically a single franchisor
enters an agreement with each individual franchisee under
which the franchisee promises the franchisor that it will not
poach employees from other franchisees or company-owned
units. is type of arrangement does not as clearly run afoul
of antitrust law for two reasons. First, the components of a
franchise may be considered a “single economic entity,” in
which case antitrust law does not apply. Second, the agreement
in the franchise setting is technically a “vertical” rather than
a “horizontal” agreement, which is evaluated under a more
generous standard in antitrust law. In Williams v. I. B. Fischer
Nevada, a court recognized both of these issues in the course of
holding that a no-poaching agreement between the Jack in the
Box franchise and each of its franchisees did not violate section 1
of the Sherman Act.
16
It is unclear whether this holding remains
good law aer the Supreme Court narrowed the denition of
a “single economic entity” in 2010, making it easier for courts
to see franchisees as independent companies that may enter
conspiracies in violation of the Sherman Act.
17
Nonetheless, franchisors who enter no-poaching agreements
with franchisees face little risk of antitrust liability. e law
remains unsettled; even if it becomes clear that the single
economic entity rule has been relaxed for franchises, it will
remain dicult for victims of no-poaching agreements to win
cases because of the complexity of the rule-of-reason analysis
applied to vertical agreements. As in the case of non-competes,
workers who seek to vindicate possible legal claims face
fundamental logistical problems. Because antitrust cases are
complex, expensive, and risky, and no-poaching agreements
may be secret, it may not be worth the time and money to
bring lawsuits. Class actions remain possible but they, too,
pose considerable risk to the lawyers who bring them.
18
In
addition, in recent years the Supreme Court has erected new
barriers to class actions by workers against employers.
19
12 A Proposal for Protecting Low-Income Workers from Monopsony and Collusion
A New Approach
HORIZONTAL MERGER GUIDELINES
DOJ and the FTC review mergers between large rms under
the Horizontal Merger Guidelines (DOJ and FTC 2010).
e Guidelines focus on the problem of product market
competition, and provide rules that help regulators determine
whether a merger will have anticompetitive eects in such
markets. While the Guidelines acknowledge that regulators
should also be on guard against mergers that enhance market
power for buyers vis-à-vis suppliers, they do not address the
special issues that arise when those suppliers supply labor
rather than other inputs (DOJ and FTC 2010). is omission
needs to be corrected.
e Guidelines (DOJ and FTC 2010) should include a new
section that directs the government to screen mergers based
on their likely eects on labor markets. Such an analysis can
be based on the normal approach to analyzing the eects of
mergers on product markets. First, the agency should dene the
labor activity—for example, sandwich maker, waiter, barista, or
retail clerk. It may be appropriate to use very broad denitions in
some cases (e.g., unskilled labor). e frequency of movements
of workers between occupations—which is informative about
the similarity of tasks involved in various occupations—could
be a useful guide for dening the scope of labor activity.
Second, the agency should identify the various labor markets
aected by the mergers. ese are geographic areas that
encompass the commuting range of workers of the relevant
skill level. Some labor markets are national in scope (e.g., skilled
professionals) and some are more limited.
ird, the agency should assess the eect of the merger on
concentration in the labor market. Specically, the agency
would calculate the premerger and postmerger Herndahl-
Hirschman index levels of the labor market, and recognize a
presumption against a merger if the postmerger absolute level
of concentration and/or the increase indicate too high a risk of
wage suppression.
Fourth, merging rms should be allowed to rebut this
presumption by showing special characteristics of the labor
market, such as high worker mobility, or evidence that the
merger will create signicant benets—economies of scale, for
example—that suciently oset any losses to workers.
Under our proposal, the regulators would be on guard against
eects on both product market competition and labor market
competition. e two are obviously dierent. Imagine that two
manufacturers seek to merge, and that they both sell goods
into a national market in which many other competitors are
involved. e merger would pass the Guidelines as currently
written. But imagine that the factories of the two competitors
are located in the same town, and those factories are the largest
employers of the town’s low-skill workers. e merger should be
blocked because of its negative labor market eects unless the
merging companies can show that the labor market will remain
competitive or that there are other signicant benets from the
merger.
Because this proposal may require more analysis by the
Antitrust Division at DOJ, we also suggest that the resources
of this department be expanded, with special attention to
hiring labor market economists. is would also provide
more capacity to investigate wage collusion or no-poaching
agreements.
NON-COMPETE AGREEMENTS
Non-compete agreements may be justied when employers
heavily invest in training employees, or trust them with
valuable information, including trade secrets, but this is
rarely the case with unskilled or low-skilled workers. In these
cases, the most plausible explanation for non-competes is
their anticompetitive value for employers. Moreover, because
many low-income workers rarely read and understand their
employment contracts, the risk of harm is far greater than in
other contexts. Accordingly, we believe that states should pass
laws, modeled on Illinois’ laws, that atly ban non-competes for
workers earning less than $13 per hour. Specically, we propose
that non-competes be uniformly unenforceable and banned if
they govern a worker who earns less than the median wage in
her state.
It is possible to argue that such an approach is too crude.
Some low-income workers are given signicant training, and
some are entrusted with trade secrets. It could be argued that
employers should be allowed to use non-competes—if not too
strict in terms of geographic scope, industry denition, and
duration—when they can show the non-compete advances
The Hamilton Project • Brookings 13
these interests. But this would just duplicate current law,
which is plainly inadequate, and in any event trade secrets
are protected by another area of the law that we would
leave undisturbed. Experience in California, where Silicon
Valley ourishes despite (or perhaps in part due to) the
unenforceability of non-competes, suggests that the strong
claims made on behalf of the value of non-competes are
greatly exaggerated (Fallick, Fleischman, and Rebitzer 2005;
Gilson 1999). Accordingly, we believe that the best approach is
a at ban of the kind we describe.
A further problem needs to be addressed, which is the
deterrent eect of even unenforceable non-competes against
workers who lack the resources and sophistication to challenge
them in court. To address this problem, states should pass laws
that require rms to delete from employment contracts non-
competes that are legally unenforceable; and to pay penalties if
the rms incorrectly tell employees that they are governed by
non-competes and threaten to sue them if they quit and accept
jobs elsewhere in the industry. e latter types of action can
be likened to fraudulent conduct and business torts that are
already illegal. e regulation we advocate can also be seen as
akin to the type of disclosure rules that require employers to
inform workers of their employment and labor rights.
NO-POACHING AGREEMENTS
Employers sometimes defend no-poaching agreements on the
grounds that they allow employers to protect their investments
in employees. is is simply not an accepted view in antitrust
law. ere are more-ecient ways to protect investments—for
example, by oering employees bonuses if they stay with the
employer—that do not pose such a signicant risk to labor
market competition.
e same logic holds for no-poaching agreements between
franchisors and franchisees. While franchisors sometimes
argue that within-franchise no-poaching agreements lead
to more-specic training, that training would not be lost to
the franchise if no-poaching agreements were illegal; there is
even less economic justication for a no-poaching agreement
among franchisees in the same chain than among other
unrelated employers.
Accordingly, we propose a per se rule against no-poaching
agreements regardless of whether they are used outside or
within franchises. In other words, no-poaching agreements
would be considered illegal regardless of the circumstances of
their use.
14 A Proposal for Protecting Low-Income Workers from Monopsony and Collusion
Questions and Concerns
1. Are problems with non-competes really a matter of
inadequate information (e.g., Marx and Fleming 2012) rather
than a problem of labor market concentration? If so, isn’t the
appropriate remedy a disclosure rule?
e problem with disclosure rules is that they rarely work
as intended, likely because of information overload. In the
context of consumer protection, study aer study shows
that consumers ignore or misunderstand information that
is disclosed as a result of legal mandates (Ben-Shahar and
Schneider 2014). is problem is especially acute for people
with little education and who are oen desperate for work.
2. Isn’t market power more of a problem with high-skill and
hence high-income workers than with low-skill workers?
Sandwich makers might be indierent between taking a job at
another sandwich shop and at any other employer of low-skill
workers, e.g., a warehouse or factory. If so, the non-compete
that is limited to the sandwich industry will not prevent them
from switching jobs. In contrast, computer programmers
whose skills and training are specic to that industry might
have trouble nding new positions if they are subject to a non-
compete.
We focus on the case of low-income workers because it has
been overlooked and the hardship is greater. If labor markets
for low-wage workers are at least somewhat disconnected from
each other, then restricting mobility will suppress low-wage
workers’ ability to move to higher-paying jobs. Moreover, even
if all employers oered low-wage workers the same pay, non-
competes could depress the entire wage scale by crowding
low-wage workers into certain sectors. e fact that employers
at Jimmy John’s and other franchises use (or have used) non-
competes suggests that they think that it increases their market
power over workers. In addition, low-skilled workers are
less likely to move across geographic boundaries than high-
wage workers, which gives employers local monopsony power
over low-wage workers. Finally, if monopsony power and
anticompetitive practices suppress pay, low-wage sectors may,
in fact, be a manifestation of such features of the labor market.
3. Are there less-aggressive, more-tailored measures to
address the problems we identify (including disclosure rules,
as discussed above)?
ere may be, but it is important to note the considerable
confusion over whether non-competes are enforceable, as
well as widespread employer abuse of the practice. We argue
that a simple, easily understood rule, such as an outright
ban of non-competes for workers earning less than the state
median wage, is likely to be eective and ultimately more
ecient than a more tailored approach that in principle
could be economically ecient, but in practice would be very
complicated to administer and follow. e fact that some
states, like Illinois, have begun to ban non-competes is a sign
that political economy forces are aligned behind this approach,
because of its simplicity, popularity, and ecacy.
4. Is there a federal remedy for problems of employer wage
collusion, non-competes, and no-poaching agreements?
If states do not adequately regulate non-competes and no-
poaching agreements, then the federal government should
step in. Congress could pass laws that ban these practices.
In addition, under its existing legal authority, the FTC could
likely ban non-competes and no-poaching agreements as
unfair trade practices. While federal regulation can be applied
only to “interstate commerce,” that term has been interpreted
broadly by the courts, so that a federal intervention would
likely be valid and eective.
5. If these proposals are implemented, won’t employers nd
other ways to exercise monopsony power?
Even if non-competes and no-poaching agreements are
prohibited, and mergers are subjected to greater scrutiny,
employers likely will seek out new ways of extending and
exercising monopsony power. But it is doubtful that these
other methods are equally eective substitutes for the practices
that we seek to constrain. In any event, we advocate additional
research and, if appropriate, legal regulation to address these
other practices.
The Hamilton Project • Brookings 15
Conclusion
T
he problems we have focused on—mergers, non-
competes, and no-poaching agreements—are part
of a much larger problem: employer concentration
and market power within labor markets. While the exact
contours of the problem remain obscure, there is little
doubt that shiing market power has contributed to income
inequality, wage stagnation, and sluggish economic growth.
Even if our solutions are adopted, we expect that labor market
concentration and unequal bargaining power will continue
to be a problem as employers nd new ways to enhance their
market power.
We hope, then, to stimulate reection on this larger problem.
ere seem to be three general avenues for future research
and policy. First, it may be necessary to strengthen and
reorient antitrust law so that it is more usable for labor market
concentration than it currently is. Merger screening is only
one part of this process. ere may be other commonly used
practices—like information sharing, coordination of hiring
through headhunters and networks, and so on—that facilitate
coordination on wages and hiring, or enable monopsonists to
extend their market power.
Second, researchers should also evaluate anew employment
regulations that may enhance workers’ bargaining power.
While a great deal of attention has been devoted to minimum
wage laws, other laws that control aspects of the employment
relationship—including hours, working conditions, and
benets—may have desirable competitive eects by osetting
unequal employer bargaining power. Contract terms (beyond
non-competes) that reduce worker mobility also may be a
matter of concern.
ird, there are broad public-policy strategies that might
meaningfully improve the bargaining power of workers.
ese include public infrastructure, which can increase the
size of labor markets by reducing commute times; education;
immigration policy; and union regulation.
16 A Proposal for Protecting Low-Income Workers from Monopsony and Collusion
Authors
Alan Krueger
Bendheim Professor of Economics and Public Aairs,
Princeton University
Eric Posner
Kirkland & Ellis Distinguished Service Professor of Law,
e University of Chicago Law School
Alan Krueger has published widely on the economics of
education, unemployment, labor demand, income distribution,
social insurance, labor market regulation, terrorism, and
environmental economics. Since 1987 he has held a joint
appointment in the Economics Department and Woodrow
Wilson School at Princeton University. He is the founding
Director of the Princeton University Survey Research Center.
He is the author of What Makes A Terrorist: Economics and the
Roots of Terrorism and Education Matters: A Selection of Essays
on Education, co-author of Myth and Measurement: e New
Economics of the Minimum Wage, and co-author of Inequality
in America: What Role for Human Capital Policies?
Krueger served as Chairman of President Barack Obama’s
Council of Economic Advisers and a Member of the Cabinet
from 2011 to 2013. He also served as Assistant Secretary for
Economic Policy and Chief Economist of the U.S. Department
of the Treasury in 2009–10 and as Chief Economist at the U.S.
Department of Labor in 2004–05.
He is currently Vice President of the American Economic
Association, and has been a member of the Executive Committee
of the American Economic Association (2005–07) and
International Economic Association. Since February 2017, he has
been a member of the Board of Directors of BNP Paribas USA. He
has been a member of the Board of Directors of the Russell Sage
Foundation, MacArthur Foundation, and the American Institutes
for Research, as well as a member of the editorial board of Science
(2001–09), editor of the Journal of Economic Perspectives (1996–
2002) and co-editor of the Journal of the European Economic
Association (2003–05).
He received a BS degree (with honors) from Cornell University’s
School of Industrial & Labor Relations in 1983, an AM in
Economics from Harvard University in 1985, and a PhD in
Economics from Harvard University in 1987.
Eric Posner is Kirkland and Ellis Distinguished Service Professor
of Law, University of Chicago. His research interests include
nancial regulation, international law, and constitutional law.
His books include Radical Markets (Princeton, forthcoming)
(with Glen Weyl); Last Resort: e Financial Crisis and the
Future of Bailouts (University of Chicago Press, forthcoming);
e Twilight of International Human Rights (Oxford, 2014);
Economic Foundations of International Law (with Alan Sykes)
(Harvard, 2013); Contract Law and eory (Aspen, 2011); e
Executive Unbound: Aer the Madisonian Republic (with Adrian
Vermeule) (Oxford, 2011); Climate Change Justice (with David
Weisbach) (Princeton, 2010); e Perils of Global Legalism
(Chicago, 2009); Terror in the Balance: Security, Liberty and the
Courts (with Adrian Vermeule) (Oxford, 2007); New Foundations
of Cost-Benet Analysis (with Matthew Adler) (Harvard, 2006);
e Limits of International Law (with Jack Goldsmith) (Oxford,
2005); Law and Social Norms (Harvard, 2000); Chicago Lectures
in Law and Economics (editor) (Foundation, 2000); Cost-Benet
Analysis: Legal, Economic, and Philosophical Perspectives (editor,
with Matthew Adler) (University of Chicago, 2001). He is a fellow
of the American Academy of Arts and Sciences and a member of
the American Law Institute.
Acknowledgments
We thank the sta of e Hamilton Project for helpful
feedback, Orley Ashenfelter for comments, and Kyle Trevett
for valuable research assistance.
The Hamilton Project • Brookings 17
Endnotes
1. For evidence on the eect of employer concentration on wages, see
Azar, Marinescu, and Steinbaum (2017). For evidence on growing rm
concentration in the labor market, see Autor et al. (2017).
2. See also U.S. and State of Arizona v. Arizona Hospital and Health Care
Association & AzHHA Service Corp., No. CV07-1030-PHX (D. Ariz. Final
Judgment led September 12, 2007), www.justice.gov/atr/case/us-and-
state-arizona-v-arizona-hospital-and-healthcare-association-and-azhha-
service-corp.
3. States vary substantially in terms of what they consider to be a reasonable
non-compete agreement, and how they approach the enforcement of non-
competes more generally. For example, some states will allow a court to
enforce a modied version of a contract that is otherwise unenforceable,
while other states do not permit this.
4. Non-competes can nevertheless still be damaging for workers with adequate
legal representation and knowledge, as the examples in Dougherty (2017a)
suggest.
5. For some notable cases involving more general settings, see Todd v. Exxon,
275 F.3d 191 (2d Cir. 2001) (petrochemical companies shared salary
information of certain employees); Nobody in Particular Presents, Inc. v.
Clear Channel Commc’n, 311 F.Supp. 2d 1048 (D. Co. 2004) (DJs); Jung v.
Ass’n of Am. Med. Coll., 300 F.Supp.2d 119 (D. D.C. 2004) (physicians); In
re Animation Workers Antitrust Litig., 123 F.Supp.3d 1175 (N.D. Cal. 2015)
(animation workers).
6. Class Action Complaint, Deslandes v. McDonald’s USA, LLC et al, No. 1:17-
cv-04857 (N.D. Ill. led June 28, 2017).
7. Deslandes v. McDonald’s USA, 18.
8. e 18-percentage-point increase in the share of major franchise chains
with a no-poaching restriction over the past two decades was unlikely to
have occurred by chance; a paired t-test of no change has a p-value of 0.004.
9. Section 16.16 of the International House of Pancake 2017 Franchise
Agreement, registered with the Wisconsin Department of Financial
Institutions, https://www.wd.org/apps/FranchiseSearch/details.aspx?id=
615829&hash=177165780&search=external&type=GENERAL on January
1, 2018.
10. ere is considerable variation in the relevant common law across states.
e discussion abstracts away from the many dierences in law.
11. Cal. Business & Professions Code § 16600; N.D. Cent. Code § 9-08-06; OK
Stat. § 15-219A.
12. Illinois Public Act 099-0860 (2016).
13. H.2366, 2017 Gen. Court, 190th Sess. (Mass. 2017).
14. 15 U.S.C. § 1–2. Under standard antitrust analysis, plaintis can prevail
either by showing that the non-compete was the result of a conspiracy (§
1) or that it furthered an eort to monopolize (or monopsonize) (§ 2). But
an ordinary non-compete clause is not a conspiracy, because it involves
an agreement between the employee and the employer, who are not
competitors, rather than between two rms. And Section 2 can usually be
enforced only against rms that achieve or attempt to achieve signicant
market dominance, and not in the case that concerns us, where common
usage of non-competes across rms create labor market frictions that
enhance employers’ bargaining power without giving them full-blown
monopsonies. For an attempt to challenge a fairly signicant non-compete
arrangement that failed because a court was persuaded that it served
legitimate business purposes, see Eichorn v. AT&T Corp., 248 F.3d 131 (3rd
Cir. 2001).
15. In 2010 Adobe Systems, Apple, Google, Intel, Intuit, and Pixar entered a
consent decree aer the government accused them of entering no-poaching
agreements in violation of antitrust law. United States v. Adobe Sys., Inc.,
No. 1:10-cv-01629 (D.D.C. led Sept. 24, 2010); United States v. Lucaslm
Ltd., No. 1:10-cv-02220 (D.D.C. led Dec. 21, 2010); DOJ 2010.
16. 999 F.2d 445, 447-448 (9th Cir. 1993).
17. Am. Needle, Inc. v. Nat’l Football League, 560 U.S. 183, 186-187 (2010). For
a discussion, see Lindsay and Santon (2012).
18. See e.g., Weisfeld v. Sun Chem. Corp., 84 Fed.Appx. 257 (3rd Cir. 2004),
which provides a vivid illustration of the diculties that lawyers face in
constructing a class of workers. To obtain class certication, a plainti must
show that the alleged wrongful conduct aected all members of the class
in a similar way. e Court held that the plainti could not make such a
showing because of variation among putative class members, including:
whether a covenant not to compete was included in a particular
employee’s contract; the employee’s salary history, educational and
other qualications; the employer’s place of business; the employee’s
willingness to relocate to a distant competitor; and [employees’] ability
to seek employment in other industries in which their skills could be
utilized (e.g., pharmaceuticals, cosmetics).
Id., citing Weisfeld v. Sun Chemical Corp., 210 F.R.D. 136, 144 (D.N.J.2002).
19. Wal-Mart v. Dukes, 564 U.S. 338 (2011).
18 A Proposal for Protecting Low-Income Workers from Monopsony and Collusion
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ADVISORY COUNCIL
The Hamilton Project • Brookings 19
ADVISORY COUNCIL
GEORGE A. AKERLOF
University Professor
Georgetown University
ROGER C. ALTMAN
Founder & Senior Chairman
Evercore
KAREN ANDERSON
Senior Director of Policy and Communications
Becker Friedman Institute for
Research in Economics
The University of Chicago
ALAN S. BLINDER
Gordon S. Rentschler Memorial Professor of
Economics & Public Affairs
Princeton University
Nonresident Senior Fellow
The Brookings Institution
ROBERT CUMBY
Professor of Economics
Georgetown University
STEVEN A. DENNING
Chairman
General Atlantic
JOHN M. DEUTCH
Institute Professor
Massachusetts Institute of Technology
CHRISTOPHER EDLEY, JR.
Co-President and Co-Founder
The Opportunity Institute
BLAIR W. EFFRON
Partner
Centerview Partners LLC
DOUGLAS W. ELMENDORF
Dean & Don K. Price Professor
of Public Policy
Harvard Kennedy School
JUDY FEDER
Professor & Former Dean
McCourt School of Public Policy
Georgetown University
ROLAND FRYER
Henry Lee Professor of Economics
Harvard University
JASON FURMAN
Professor of the Practice of
Economic Policy
Harvard Kennedy School
Senior Counselor
The Hamilton Project
MARK T. GALLOGLY
Cofounder & Managing Principal
Centerbridge Partners
TED GAYER
Vice President & Director
Economic Studies
The Brookings Institution
TIMOTHY F. GEITHNER
President
Warburg Pincus
RICHARD GEPHARDT
President & Chief Executive Officer
Gephardt Group Government Affairs
ROBERT GREENSTEIN
Founder & President
Center on Budget and Policy Priorities
MICHAEL GREENSTONE
Milton Friedman Professor of Economics
Director of the Becker Friedman Institute for
Research in Economics
Director of the Energy Policy Institute
University of Chicago
GLENN H. HUTCHINS
Co-founder
North Island
Co-founder
Silver Lake
JAMES A. JOHNSON
Chairman
Johnson Capital Partners
LAWRENCE F. KATZ
Elisabeth Allison Professor of Economics
Harvard University
MELISSA S. KEARNEY
Professor of Economics
University of Maryland
Nonresident Senior Fellow
The Brookings Institution
LILI LYNTON
Founding Partner
Boulud Restaurant Group
HOWARD S. MARKS
Co-Chairman
Oaktree Capital Management, L.P.
MARK MCKINNON
Former Advisor to George W. Bush
Co-Founder, No Labels
ERIC MINDICH
Chief Executive Officer & Founder
Eton Park Capital Management
ALEX NAVAB
Former Head of Americas Private Equity
KKR
Founder
Navab Holdings
SUZANNE NORA JOHNSON
Former Vice Chairman
Goldman Sachs Group, Inc.
PETER ORSZAG
Vice Chairman of Investment Banking
Managing Director and
Global Co-head of Health
Lazard
Nonresident Senior Fellow
The Brookings Institution
RICHARD PERRY
Managing Partner &
Chief Executive Officer
Perry Capital
PENNY PRITZKER
Chairman
PSP Partners
MEEGHAN PRUNTY
Managing Director
Blue Meridian Partners
Edna McConnell Clark Foundation
ROBERT D. REISCHAUER
Distinguished Institute Fellow& President Emeritus
Urban Institute
ALICE M. RIVLIN
Senior Fellow, Economic Studies
Center for Health Policy
The Brookings Institution
DAVID M. RUBENSTEIN
Co-Founder &
Co-Chief Executive Officer
The Carlyle Group
ROBERT E. RUBIN
Former U.S. Treasury Secretary
Co-Chair Emeritus
Council on Foreign Relations
LESLIE B. SAMUELS
Senior Counsel
Cleary Gottlieb Steen & Hamilton LLP
SHERYL SANDBERG
Chief Operating Officer
Facebook
DIANE WHITMORE SCHANZENBACH
Margaret Walker Alexander Professor
Director
The Institute for Policy Research
Northwestern University
Nonresident Senior Fellow
The Brookings Institution
RALPH L. SCHLOSSTEIN
President & Chief Executive Officer
Evercore
ERIC SCHMIDT
Technical Advisor
Alphabet Inc.
ERIC SCHWARTZ
Chairman and CEO
76 West Holdings
THOMAS F. STEYER
Business Leader and Philanthropist
LAWRENCE H. SUMMERS
Charles W. Eliot University Professor
Harvard University
LAURA D’ANDREA TYSON
Professor of Business Administration and
Economics Director
Institute for Business & Social Impact
Berkeley-Haas School of Business
JAY SHAMBAUGH
Director
20 A Proposal for Protecting Low-Income Workers from Monopsony and Collusion
Highlights
New evidence that labor markets are being rendered uncompetitive by employers
suggests that the time has come to strengthen legal protections for workers.
Labor market collusion or monopsonization—the exercise of employer market
power in labor markets—may contribute to wage stagnation, rising inequality,
and declining productivity in the American economy, trends which have hit low-
income workers especially hard. Alan Krueger and Eric Posner propose three
reforms to address these problems.
The Proposal
Enhance scrutiny of mergers for adverse labor market effects. The authors
propose that the Horizontal Merger Guidelines include a new section that directs
the government to screen mergers based on their likely effects on labor markets.
Ban non-compete covenants that bind low-wage workers. The authors
propose that non-competes be prohibited for workers who earn less than the
median wage in their state.
Prohibit no-poaching arrangements among establishments that belong to a
single franchise company. The authors propose that no-poaching agreements
between franchisors and franchisees be uniformly banned.
Benefits
Mergers that reduce labor market competition, non-compete agreements,
and no-poaching agreements are part of a much larger problem: employer
concentration and market power within labor markets. While the exact contours
of the problem remain unclear, there is little doubt that shifting market power
has contributed to income inequality, wage stagnation, and sluggish economic
growth. The policies in this proposal would limit some of the more harmful
employer practices.
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