The FTC is banning non-compete clauses
Why that might make job switching even more lucrative
Yesterday, the US Federal Trade Commission voted 3-to-2 for a near-total ban on non-compete agreements, the contract stipulations that prevent millions of employees — from bankers, to biochemists, to bartenders — from finding new work or starting businesses in their field after they leave their jobs.
Lost clause
The new rule, coming almost 3 years after Biden signed an executive order that encouraged limiting the agreements, will work to prevent the “unfair methods of competition” from keeping wages low, suppressing new ideas, and “robbing the American economy of dynamism”, according to FTC Chair Lina Khan.
The FTC reports that non-competes affect nearly 1 in 5 American workers, with the regulator also estimating that the ban will raise the average employee’s annual earnings by $524 and create thousands of new startups.
While the $524 average pay rise is a theoretical benefit for now, there is a substantial body of evidence that suggests moving jobs is a good way to get a pay bump. Data from the Atlanta Fed reveals that, for much of the last 24 years, the employees who go, rather than stay, have typically seen larger pay rises within 12 months. The theory follows that reducing frictions in that switching process would lead to more competition for talent and, thus, rising wages.
Still, the anti-anti-competition measure has already drawn criticism from industry groups that consider the move too drastic. The Chamber of Commerce, the largest business lobby in the US, plans to sue the regulator as early as today on the basis of the “dangerous precedent” that the ban sets for government involvement in business and compromises its ability to protect confidential information.
