Many of us have heard the saying that “a little competition is good for you.” This saying holds true for the country’s labor market according to a 68-page report recently released by The Department of the Treasury titled “The State of Labor Market Competition.”
This report details many of the negative results realized by labor markets that lack competition. Such competition is often stifled by states in the form of occupational licensing and economic protectionism.
The report cites a 2016 report from the Treasury’s Office of Economic Policy that found little evidence that marginal changes in occupational licensing typically increase quality, safety, or health. However, occupational licenses have proliferated, and as a result, put undue strain on workers and the labor market.
Economic protectionism, specifically in the form of non-compete agreements, is highlighted as a mechanism that reduces wages and mobility for lower-income earners. As detailed in the report, twenty-one percent of workers in the top income quintile are covered by a non-compete agreement compared to eight percent of workers in the bottom income quintile. These higher-income earners retain significant bargaining power to reject such agreements when compared to lower-wage earners. As a result, non-compete agreements may increase top-earner wages at the expense of mobility but decrease both for lower-wage earners.
Lack of competition has caused wages to fall nearly twenty percent of what they would be in a market that fosters competition between professionals. To make matters even worse, those whose wages are most negatively affected, with an estimated loss of twenty-six cents on the dollar, are the bottom quartile of wage earners.
A market that lacks sufficient competition must be avoided. A healthy economy provides competition that allows employees to retain wages and reduces abuses of market power in ways that impose costs on workers, including unpredictable just-in-time schedules, punishing work conditions, and no opportunity for advancement.
Policy Associate
Ben was a Policy Associate at Libertas Institute.