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How uncompetitive markets hurt workers

Author

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  • Andrew Leigh

    (Department of Competition, Charities and Treasury)

Abstract

From 2012 to 2022, average full-time wages grew by just 1 per cent in real terms. One possible contributing factor to slow wage growth is the combination of growing employer power and shrinking employee power. In 2022, the unionisation rate fell to 12 per cent, the lowest level since Federation. Work by Jonathan Hambur (2023) suggests that many Australian labour markets are concentrated, particularly in regional areas. Since the mid-2000s, the negative impact of concentration on wages has more than doubled. Monopsony power is also closely connected with firm entry. In areas with fewer new firms, people are less likely to switch jobs. Two contractual features that may entrench monopsony power are non-compete clauses that restrict employees from immediately switching to a competing employer; and no-poach clauses that restrain franchisees from hiring workers at competing outlets. By restricting labour market mobility, non-compete clauses and no-poach clauses may increase monopsony power.

Suggested Citation

  • Andrew Leigh, 2023. "How uncompetitive markets hurt workers," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 26(1), pages 1-21.
    • Handle: RePEc:ozl:journl:v:26:y:2023:i:1:p:1-21
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    File URL: https://ajle.org/index.php/ajle_home/article/view/159
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    References listed on IDEAS

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    1. Orley Ashenfelter & David Card & Henry Farber & Michael R. Ransom, 2022. "Monopsony in the Labor Market: New Empirical Results and New Public Policies," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 1-10.
    2. Joshua Gans & Andrew Leigh & Martin Schmalz & Adam Triggs, 2019. "Inequality and market concentration, when shareholding is more skewed than consumption," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 35(3), pages 550-563.
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    5. Alan B. Krueger & Orley Ashenfelter, 2022. "Theory and Evidence on Employer Collusion in the Franchise Sector," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 324-348.
    6. Evan Starr & J J Prescott & Norman Bishara, 2020. "The Behavioral Effects of (Unenforceable) Contracts† [“Selection on Observed and Unobserved Variables: Assessing the Effectiveness of Catholic Schools]," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 36(3), pages 633-687.
    7. Evan P. Starr & J.J. Prescott & Norman D. Bishara, 2021. "Noncompete Agreements in the US Labor Force," Journal of Law and Economics, University of Chicago Press, vol. 64(1), pages 53-84.
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    9. James Bishop & Iris Chan, 2019. "Is Declining Union Membership Contributing to Low Wages Growth?," RBA Annual Conference Papers acp2019-06, Reserve Bank of Australia.
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    More about this item

    Keywords

    monopsony power; unionisation; non-compete clauses; no-poach clauses;
    All these keywords.

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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