Biden’s boost to competition promises long-term gains for the economy

President Joe Biden’s new plan to promote competition between industries and in the labor market may generate long-term gains for the U.S. economy by increasing productivity and wages, economists say.

The president announced an executive order on Friday that orders federal agencies to ban or limit non-compete agreements – which make it harder for workers to change jobs in search of higher pay – as well as ‘a series of proposals aimed at preventing unfair competition between large and small businesses.

While the focus is on technology, agriculture, transportation and pharmaceutical industries, some of the measures will apply to the whole economy. The aim is to counter a trend in which market share in many industries is concentrated in a small number of companies, widening the income and wealth gap, according to the administration.

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“If this is successful, it will create more competition, improve mobility in the labor market, and in the longer term, we could possibly see an upside risk to our forecast for wage growth and productivity,” said Ryan Sweet, head of monetary policy research. at Moody’s Analytics.

More concentrated

Over the past few decades, economists say many US industries have experienced increasing concentration and decreasing competition

Source: Council of Economic Advisers, 2016

Declining competition and the dominance of big business has been a hot topic for economists in recent years. A series of studies have shown that in most US industries there is more concentration today than a few decades ago.

Many researchers have argued that this is one of the reasons that wage increases have been slow: with markets for goods or services divided among a smaller number of competitors, workers in those industries are left with less. of bargaining power.

“Faulty belief”

Reducing the trend towards corporate consolidation will promote competition and provide benefits to workers, consumers, farmers and small businesses, the White House said in a statement describing the executive order. The measure also aims to strengthen the enforcement of antitrust laws.

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The United States Chamber of Commerce, the largest business group, called the idea that the economy has become too concentrated a “mistaken belief” and warned the administration against overlooking the importance of large firms for economic growth.

“In many industries, size and scale are important not only to be competitive, but also to justify massive investment levels,” the group said in a statement Friday. “Large companies are also strong partners who build on small businesses and facilitate their growth. “

The move to ban non-compete agreements – contractual clauses in which workers agree that if they quit or are made redundant, they cannot go to work for a competitor, at least for a period of time – could remove a hurdle to better pay in many industries.

The clauses aim to prevent the exchange of trade secrets. Instead, they often end up locking workers into bad jobs and reducing their bargaining power, said Karla Walter, director of employment policy at the Center for American Progress.

What is a “competitor”?

In 2014, for example, it was revealed that sandwich chain Jimmy John’s required workers to sign non-compete agreements that prohibited them from working at any of the sandwich chain’s competitors for a period of two years after their employment. The definition of a “competitor” business was very broad, encompassing any business located near a Jimmy John’s store or deriving 10% of its revenue from sandwiches.

Walter said that by banning non-compete agreements – which are believed to be a third of Americans signed – worker mobility would increase and entrepreneurs would have an easier time attracting talent.