Formerly Employed Need Not Apply, An Analysis of the Ubiquity of Non-Compete Agreements, their Impacts on Workers, & Policy Solutions

Abstract

From Monopoly to Monopsony to Unfavorable Contract Terms

The 2020 presidential election is the second consecutive presidential campaign where discussions of extreme wealth and consolidated economic power are taking center stage. Multiple Democratic Presidential contenders pointed toward the largest firms in our economy as central players in income inequality, environmental degradation, and lower quality of life. National organizations such as Brookings and publications such as The Economist are keying in on “America’s monopoly moment.”1 Monopoly has two disparate definitions depending on who is receiving the information being put forward. For economists, a monopoly is a market where a single entity is the sole supplier of a product or service. Simple enough. For advocates and those who experience the gears of the economy first-hand, monopoly is interchangeable with oligopoly: or a market controlled by just a few firms. This leaves participants in a market (and those dependent on a healthy market) with few options to communicate displeasure with labor practices and where few firms crush economic competition.

While monopoly definitions describe the sellers of products, economic domination can also occur in the buyer’s market. In the labor market, this domination is called monopsony. In addition to the ways that monopolies increase inequality, a “reduction in competition among firms, [shifts] the balance of bargaining power towards employers.” Labor’s share of income is currently still well below the year 2000 level (see Figure 1), and this disparity could be partially due to monopsonistic labor practices across various sectors of the economy. A 2016 publication from the White House’s Council of Economic Advisors (CEA) delivers a useful case where firm consolidation impacts workers: “a monopsonistic employer can pay a lower wage than would prevail in a competitive market without losing all its workers to competing employers. Like monopoly power, monopsony generally leads to economic inefficiency. And, in the labor market, it also leads to redistribution from workers to employer.”