Skip to Main Content

Keeping you informed

White House Council of Economic Advisors Cites Non-Competes as Factor in Increasing Labor Monopsony

    Client Alerts
  • November 02, 2016

I vaguely recall the word “monopsony” from an introductory economics course, but to be honest, I could not remember what it means. The term monopsony is defined as, “a market condition where one or a small group of firms exercise such control over a particular product or service that they are able to pay lower prices for its inputs.” While a monopoly can result in higher consumer prices, a monopsony allows the controlling company to lower its costs of production by paying less than would be the case in a competitive marketplace.

Earlier this month, the President’s Council of Economic Advisors released an issues brief discussing the consequences of a labor market monopsony on wages and economic equality. The Council identified monopsony as a significant contributing factor behind slow wage growth in the U.S. in recent years. Absent a competitive labor market in some industries, employees lack the ability to increase their incomes by selling their services to a competitor.

In addition to market concentration, the issues bulletin notes recent cases of wage collusion among competitors in Silicon Valley and in the healthcare industry who allegedly agreed not to hire each other’s employees. The bulletin also cites non-competition agreements as a significant contributing factor toward market monopsony, noting that 18 percent, or 30 million U.S. employees are currently restricted from moving to competitors. Finally, the Council points out that the decline of organized labor, regulatory (i.e., licensing) restrictions and lack of healthcare portability also contribute to a lack of labor mobility.

The issues bulletin concludes by setting forth a list of proposed remedial steps such as increased antitrust enforcement efforts. More importantly for employers, in addition to the bulletin, the White House also released a set of “best practices and call-to-action” for states to implement specific policy reforms to “curb the use of unnecessary non-compete agreements.” Among other recommendations, the White House urges states to ban non-compete agreements for (1) workers under a certain salary threshold; (2) those who do not have access to trade secrets; (3) workers in public interest vocations; and (4) employees who have been terminated or laid off without cause.

Neither the issues bulletin or White House best practices guidelines have any force of law. However, they represent one of the first expressions of federal interest in controlling state law governed non-competes. In recent years, state courts and legislatures have become increasingly hostile to non-compete agreements they view as overbroad or unfair. If Democrats continue to hold the White House or regain control of Congress, these new policy documents could represent an indication of future federal legislative and regulatory intentions.