Originally fairly rare, noncompete agreements have become more and more common in recent decades. They mean that if you work for a company, you may be unable to pursue a different job, start your own business, or bring new ideas to market — if the company thinks it might cut into their own revenue.
Who does this benefit? Billionaires. Who is it bad for? Workers.
Well, President Biden and his administration are putting an end to it!
FTC bans contracts that keep workers from jumping to rival employers
The Federal Trade Commission on Tuesday banned noncompete agreements for most U.S. workers, a move that will affect an estimated 30 million employees bound by contracts that restrict workers from switching employers within their industry.
The agency voted 3-2 to issue the rule, with commissioners in the majority saying they saw a mountain of evidence that noncompete agreements suppress wages, stifle entrepreneurship and gum up labor markets. The new rule makes it illegal for employers to include the agreements in employment contracts and requires companies with active noncompete agreements to inform workers that they are void.
The rule, recommended by President Biden as part of a 2021 executive order, is the latest step in a major effort by the FTC to expand the boundaries of antitrust enforcement. Scholars cite a body of research that shows noncompete agreements suppress worker pay and entrepreneurship and make it more expensive for employers to hire workers bound by the covenants.
The rule states that new noncompete agreements will be banned for all workers after it takes effect. Existing noncompete agreements will no longer be enforceable, except for senior executives, who the FTC says represent less than 1 percent of workers.
President Biden cheered the move Tuesday: “Workers ought to have the right to choose who they want to work for.”
Besides being fairer to workers, the change should mean a big shot of juice for the economy. The FTC estimates that the noncompete ban should lead to:
- Reduced health care costs: $74-$194 billion in reduced spending on physician services over the next decade.
- New business formation: 2.7% increase in the rate of new firm formation, resulting in over 8,500 additional new businesses created each year.
- A rise in innovation: an average of 17,000-29,000 more patents each year for the next ten years.
- This reflects an estimated increase of about 3,000 to 5,000 new patents in the first year noncompetes are banned, rising to about 30,000-53,000 in the tenth year.
- This represents an estimated increase of 11-19% annually over a ten-year period.
- Higher worker earnings: $400-$488 billion in increased wages for workers over the next decade. The average worker’s earnings will rise an estimated extra $524 per year.
Experts say these results make sense.
“If you ban these non-compete clauses, economic theory predicts wages should go up for workers and we should see more turnover,” says Mindy Marks, an associate professor of economics at Northeastern who specializes in labor economics. “Instead of being locked into their current employer, we should see greater mobility.”
That’s exactly what happened in Hawaii when, in 2015, the state banned non-competes in the tech sector. New-hire wages increased by 4% and mobility by 11%, researchers found.
“For me, this is something that is a long time coming and should have happened sooner,” says Samina Karim, professor of entrepreneurship and innovation at Northeastern University.
Is there still more work to be done? 100%! Lots more work. But Biden has done so much more than many people guessed could be done. He deserves a lot of credit. AND he deserves to be re-elected.
What can you do to help?
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Looking for something else? Here are some other ideas:
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- Get involved with Swing Left. They are working on races right now!
- Get involved with Postcards to Voters. Influence voters in key areas from the comfort of your own home!
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- Volunteer with Black Voters Matter at this link. They have work on the ground in progress in 10 states, and people from other states can write postcards, phonebank, fundraise, and text.
- Sign up at Democracy Docket to stay informed about the fight against voter suppression and the fight for voter rights.
This is an entry in my ongoing series Boosting Biden.
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These posts are written by Goodnewsroundup (Goodie), edited by Matilda Briggs, supported by 2thanks and WolverineForTJatAW, and reinforced by several other notable Kossacks! As with all good things, it takes a village.