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August 6, 2018   2 mins

What can we do about wage stagnation?

Ideas include confronting crony capitalism; tackling the root causes of low productivity; and shifting the burden of taxation from income to wealth.

Those all look good to me, but the thing about long-term reforms is that they take a while. Is there anything governments could be doing right now?

There is, argues Noah Smith in a piece for Bloomberg. We could ban “non-compete agreements”:

“These [agreements] bar employees from going to work for a company’s competitors, short-circuiting the process of competition by which companies bid up wages. Simply banning this type of anticompetitive contract would help bring back bidding wars that increase workers’ power and pay. Some states, like California, have already done this.”

Writing about the same issue for the Atlantic, Annie Lowrey points out that the problem is more common that one might think:

“…non-compete and no-poaching clauses used to be common only among executives and other high-income workers, but now roughly one in five workers are covered by them; more than half of major franchise businesses… include no-poaching agreements in their contracts. This suppresses wages by reducing competition for workers—and is now seen as one of several reasons wage growth has been so sluggish during the recovery.”

But without such arrangements how would companies protect their investments? Indeed, why would they invest at all in things like training and innovation if free-riding competitors can poach their staff unimpeded (along with everything they’ve learned while onboard)?

That might be a valid point in regard to staff in senior positions and for specialist companies like tech sector start-ups. But for most employees, non-compete agreements are an unjustified imposition. That’s especially true of large, diversified companies with competitors in a number of different sectors; it would be entirely unreasonable to prevent workers from accessing so many sources of alternative employment.

When restrictions of this sort are placed on low-skilled, low-paid staff it looks as if the thing being protected isn’t the company’s ‘secret sauce’, but the cheapness of a rigged and captive labour market. With full, or nearly full employment, becoming a feature of many local and national economies, any persistence in wage stagnation should be looked upon with increasing suspicion.

For companies above a certain size and positions below a certain wage level, barriers to job-hopping should be removed as a matter of urgency. If employers want to hold on to staff then they should pay and treat them accordingly. 

This is something that we all have an interest in. Even if you’re well-paid and happy in your job, it’s your taxes being used to fund the support mechanisms – like social housing, tax credits and other subsidies – that make low-paid employment even minimally sustainable. In effect, low-paying businesses are profiting from your labour, not just that of their own staff.

Ultimately, it’s an issue of basic fairness. In a globalised world, multinational corporations can only get that way because different countries allow them to sell their goods and services at the best possible price. If the words ‘free market’ are to carry any moral content then the same freedoms should be enjoyed by ordinary working people.

Peter Franklin is Associate Editor of UnHerd. He was previously a policy advisor and speechwriter on environmental and social issues.