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15 March 2022

Public policy and labour market competition

The last decade has witnessed a number of remarkable developments in public policy, laws and law enforcement that have been associated with failures of competition in US labour markets. These include: (1) enforcement actions and antitrust law suits regarding explicit conspiracies to suppress competition in labour markets; (2) the documentation and forced abolition of franchise contracts that include worker ‘no-poaching’ clauses; (3) explicit discussion of the regulation of mergers that affect labour market competition; and (4) legislation and regulation affecting ‘non-compete’ and ‘non-solicit’ clauses in employment contracts.

It is difficult to pinpoint the reasons for this rebirth of interest in competition in labour markets. No doubt one factor at work is the stagnation of real wage rates. Wage rate growth has a natural benchmark: productivity growth. In the three decades following World War II, productivity growth and real wage growth were similar. But in the four decades since that time, productivity growth has been four to five times as high as wage growth. The gap between wage growth and productivity growth implies that the share of aggregate real income paid to workers has declined. Despite elaborate explanations for this gap that rely on assumptions about technology, a decline in labour market competition is one obvious explanation for this development.

In addition, there have been some very visible examples of explicit collusion in labour markets, and these have raised questions about just how much competition has been damaged. With the decline in the strength and size of the trade union movement, it is also understandable that few natural checks on competitive failures exist outside of government actions.

In the following, I review the recent developments in public policy. I begin with a deconstruction of a particularly high-level conspiracy to reduce labour market competition in the High-Tech world.

Cite this as:

Ashenfelter, O. (2022), ‘Public policy and labour market competition’, IFS Deaton Review of Inequalities,