Why have wages been so slow to rise at a time when demand for workers has pushed the U.S. unemployment rate to its lowest point in nearly half a century? One answer: contracts that tie millions of unspecialized workers to their jobs.
In far too many cases, these so-called non-competes are an unwarranted restriction on freedom to transact and a drag on growth.
The desire to keep workers from defecting to rival employers is as old as employment itself. The idea is back in vogue as companies exploit the power that comes with increasing size and market concentration. In the U.S., new employees are commonly required to sign contracts that forbid them to work in the same industry for a given period.
A 2014 survey found that about two in five workers were or had at some point been bound by such contracts. Why are non-competes so popular? Simple—because they restrain wages.
For highly skilled professions, the costs of limiting workers' options often exceed any benefits. Non-competes impede job growth, worker mobility, and entrepreneurship.
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