November 3, 2021
By Sofia Jordan
Workers and employers must negotiate the division of net revenues that any given economic activity produces.
How this issue is resolved—and how favorable it is to each party—depends on several factors, the most obvious one being who holds bargaining power. Traditionally, unions and labor law advocates have pushed for laws and regulations that protect forms of collective organizing, acknowledging that workers are at a disadvantage. However, since the ‘70s and ‘80s there has been a sharp decline of union density in the United States.
In this context, antitrust law has begun offering another path for protecting workers’ rights as the Department of Justice pursues its first criminal case involving no-poach agreements between competing employers. Historically, the antitrust doctrine has been more concerned with preventing monopolies in product markets and has emphasized the notion of consumer welfare almost exclusively by evaluating price fluctuations. More recently, however, this framework has proven useful to evaluate the dynamics of labor markets and the market power exerted by employers. This is sometimes referred to as "monopsony power" because firms have the ability to set wages (and conditions of employment) below competitive levels without necessarily seeing workers leave.
Economists have studied the mechanisms through which an equilibrium price is reached mainly by using the neoclassical approach in which supply and demand are the driving forces behind prices, consumption, wages, and employment levels. While this approach is somewhat useful, there is increasing evidence that labor is far from being a competitive market. Groundbreaking empirical analysis from the 1990s and 2000s (David Card, Alan B. Krueger, Alan Manning) established that employer power to set wages exists, making monopsony the better model to assess labor markets than perfect competition. Hence, the increased attention of authorities and regulators.
No-poach or no-hire agreements occur when employers agree not to hire each other's workers. Through these schemes, employers suppress wages and hinder potential advances in workers’ career trajectories. The effects are felt long-term.
In competition economics, market power is the ability to profitably charge prices above the competitive level. In the product market, companies that can do this are known as "monopolies." On the labor market side—where employers are buyers of labor and workers are the “sellers”—an employer with market power is known as a "monopsonist." Another way of understanding monopsony power is to imagine a labor market in which any attempt to pay a lower wage does not result in an inability to hire workers, because workers have limited options for switching jobs.
Employers can obtain market power by entering into no-poach agreements because through them they are agreeing to eliminate competition for workers. This inhibits a worker’s ability to negotiate better compensation packages because they stop accessing information about other job offers and the value of their skills.
In a competitive market, whenever a person receives an offer at a competing firm they can (i) use it to negotiate with their current employer or (ii) accept it. The firm can match the offer to retain their employee, or simply let them go. In any case, firms have revealed crucial information about their compensation structures that workers across the market use to negotiate better wages. Thus, when employers compete for labor, workers access information about wages and opportunities, which grants them bargaining power. So, the available set of potential jobs a worker could switch to is critical for wage growth and career advancement.
In the absence of competition, employers do not need to raise compensation to respond to workers’ negotiation efforts or ward off offers from competitors simply because the outside offer is non-existent. This means that mobility—the potential to switch jobs—is restrained, which stunts workers’ career development and their power to negotiate.
When employers agree to restrain alternative employment opportunities and the freedom to pursue them, they are engaging in abuse of market power that has unquestionable anticompetitive effects.
Indeed, the Department of Justice has issued Guidelines for Human Resources Professionals that warn companies about the seriousness of engaging in these agreements.
The Joseph Saveri Law Firm is dedicated to protecting employee rights. Our robust class-action practice group is here to help. Click here to see our current no-poach antitrust investigation against Taboola and Outbrain and our Medical Center Employee No-Poach Litigation.
For more information on no-poach agreements and what they mean for the economy, please contact Sofia Jordan, the firm's economist.