President Joe Biden’s executive order to promote competition in the U.S. economy includes some welcome and long-needed changes to the U.S. labor market—but his proposed antitrust policy reforms may undermine these changes.
The order encourages the Federal Trade Commission to prohibit or restrict anti-competitive practices in the labor market, such as non-compete agreements, occupational licensing requirements, and employer cooperation to suppress wages. These measures are essential to ensure that the economic benefits brought about by rapid economic growth and the tight labor market not only increase the wages of existing workers, but also attract marginal workers to return to the workforce.
They are in stark contrast to other administrative proposals that seek to improve working conditions by restricting competition among workers.
It is generally believed that the labor market is a battleground between existing employers and workers. According to this way of thinking, non-competition agreements are beneficial to employers but not to workers, while mandatory collective bargaining is beneficial to workers but not to employers.
This thinking ignores the importance of currently unemployed workers. Any restrictions on competition in the labor market—whether from employers or employees—make it unlikely that companies will take risks on these marginal workers. Unable to get a full-time entry-level (or re-entry-level) job, they may be forced to rely on odd jobs, relatives, or government programs for years or even decades.
Generally speaking, agreements between insiders—in this case, existing workers and companies—make the entry of outsiders more difficult. On the other hand, when the labor market is as open as possible, outsiders benefit the most. Openness is a priority for Biden.
In the last few years before the pandemic, the unemployment rate fell further and the labor force expanded beyond economists’ imaginations, reminding people that these types of benefits are not just theoretical. The median real household income finally got rid of the 20-year downturn, and inequality measures began to improve (so slightly).
To return to that era, workers not only need more job opportunities. They also need the low prices and opportunities that big companies like Amazon can create through unprecedented technology and infrastructure investments.
Biden’s antitrust policies may disrupt large companies or force them to conduct business in a less efficient manner. This will hurt workers in two ways.
First, it will erode wages.
When higher prices came from restricting the economies of scale of large and efficient companies, employment did not increase correspondingly. (In contrast, higher prices from strong demand may have the side effects of employment promotion, because companies need more workers to meet this demand.) This price increase is more similar to price increases caused by supply chain disruptions. The pandemic has made the situation of workers and their families worse.
Second, these price increases will put more pressure on the Fed to raise interest rates and slow the economy-which is not good for workers.
Antitrust policies that reduce efficiency and raise prices are the exact opposite of what the United States currently needs. If the government really wants to exert maximum competitive pressure on large American companies, then Biden should rediscover his interest in seeking new trade agreements that can increase exports and provide competition for domestic companies. Simply attacking large companies will give most workers higher prices and fewer opportunities.
In the post-pandemic era, providing the best opportunities for all workers (both working and unemployed) requires at least two things: increasing competition in the labor market, and avoiding anti-efficiency measures that pretend to be antitrust policies. Biden suggested that the former is commendable, but his government is too eager to accept the latter.