We’ve discussed non-competes here before. Here’s my co-blogger, Caleb Fuller, making a common-sense point in a prior post:
Non-competes protect the investments that employers make in their employees…if [the employee] preferred the ability to swiftly switch to a rival employer, he could take lower wages in return for this perk.
Here’s a related passing thought of mine. The prompt is this paragraph in the White House’s commentary on a new Executive Order taking aim at non-compete agreements:
Barriers to competition are also driving down wages for workers. When there are only a few employers in town, workers have less opportunity to bargain for a higher wage and to demand dignity and respect in the workplace. In fact, research shows that industry consolidation is decreasing advertised wages by as much as 17%. Tens of millions of Americans—including those working in construction and retail—are required to sign non-compete agreements as a condition of getting a job, which makes it harder for them to switch to better-paying options.
Do non-compete agreements really make it harder to switch to another job? On the surface, yes. But what is the impact of a free contracting environment on the investment employers are willing to make into their employees? And thereby, on wages, generally?
But what interests me is the even broader issue here: To what degree do non-competes change the way executives think about expanding their operational capacity, generally? What solution are they more likely to think of first, when it comes to the decision of whether to hire someone new or invest in a technology solution?
Banning non-competes means employers’ investment into workers is less protected, and the measure increases a company’s exposure to risk from loss of trade secrets. This is significant, and affects how companies think about hiring.
If I had more time, I’d research how wages and demand for labor differ in states where non-competes are illegal (CA, OK, ND) vs. other states. I’d probably start by looking at salespeople and sales agencies. In what regulatory environment are companies more likely to address capacity shortcomings with new hires vs. new technology? Is there some new technology that is more-or-less interchangeable at-cost with skilled labor of some kind? Can we compare this across regulatory environments?
Maybe that’s a thesis idea for some grad student somewhere.
I suppose I’m just stating Fuller’s post another way.
Non-competes benefit workers.