FTC Chair Lina Khan on non-competes

Lina Khan, in an op-ed for The New York Times:

Noncompete clauses systemically drive down wages, even for workers who aren’t bound by one. Every worker stuck in a job represents a position that isn’t opening up for someone else. And if employers know their workers can’t leave, they have less incentive to offer competitive pay and benefits, which puts downward pressure on wages for everyone.

F.T.C. economists conservatively estimate that noncompetes suppress American workers’ income by roughly 3 percent to 4 percent, or $250 billion to $296 billion.

Perhaps this would be more forgivable if noncompetes really did spur innovation, helping companies take big swings and bold risks. But here, too, the real-world evidence reviewed by the F.T.C. undermines the theory. As the name implies, noncompete clauses tend to make markets less competitive. Rather than encouraging dynamism and new ideas, they can enable stale incumbents to lock out new rivals.

Her essay is well worth reading. Khan makes a compelling case for the FTC’s proposed rule.

Competition is supposed to be a good thing.

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