One in five American workers has signed a noncompete clause. The FTC believes that the elimination of these clauses would generate extra job opportunities for 30 million workers and raise wages by $300 billion—a huge win for the average American worker. Economist Evan Starr shares findings from his new report on noncompetes and their enforceability in court, which uses data from our home state of Washington.

Evan Starr is an Assistant Professor of Management & Organization at the Robert H. Smith School of Business at the University of Maryland. He received a Ph.D. in economics from the University of Michigan.

Twitter: @evanpstarr

Do Firms Value Court Enforceability of Noncompete Agreements? https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4364674

The Transformation at the Heart of Biden’s Middle-Out Economic Agenda https://prospect.org/economy/2023-02-09-biden-middle-out-agenda

Why your noncompete clause is probably illegal https://pitchforkeconomics.com/episode/why-your-non-compete-clause-is-probably-illegal-with-attorney-general-bob-ferguson 

Website: https://pitchforkeconomics.com

Twitter: @PitchforkEcon

Instagram: @pitchforkeconomics

Nick’s twitter: @NickHanauer

 

David Goldstein:

Non-compete agreements have surprisingly been everywhere for a very long time.

Evan Starr:

And non-competes are really old.

Nick Hanauer:

I object to non-competes. They’re anti-competitive, bad for innovation, bad for everything except the profits of the largest enterprises.

Evan Starr:

We studied a law that was passed in the state of Washington in 2020.

Nick Hanauer:

Yay Washington.

Evan Starr:

The Washington Paper suggests that it’s pretty straightforward to justify a ban covering at least 80% of workers.

Speaker 4:

From the home offices of Civic Ventures in downtown Seattle. This is Pitchfork Economics with Nick Hanauer. The best place to get the truth about who gets what and why?

Nick Hanauer:

I’m Nick Hanauer, founder of Civic Ventures.

David Goldstein:

I’m David Goldstein, senior fellow at Civic Ventures. Nick, you’re a really rich and powerful guy.

Nick Hanauer:

That’s what I like to tell myself. Go ahead.

David Goldstein:

Yeah. An important figure in your industry, and I’m just curious why it is, given your stature, that you have never forced me to sign a non-compete agreement?

Nick Hanauer:

Oh God, where would you go?

David Goldstein:

Yep. That is one of the advantages of this very thin labor market that you and I have.

Nick Hanauer:

Yeah, yeah, exactly.

David Goldstein:

Nobody else would want me.

Nick Hanauer:

Yeah, exactly.

David Goldstein:

But it turns out not all labor markets are as thin as ours. And non-compete agreements have surprisingly been everywhere for a very long time.

Nick Hanauer:

Yeah, it is true. And it’s such an interesting subject, because it affects such a high proportion of workers in America today. Certainly when I started out in my career, it really did not. And I think a non-compete agreement was something that you might ask the senior executives of a large firm, but in particular a large technology firm to sign. And then over the years it became just this insidious thing that big firms asked everyone to sign as a way to make, it’s just a power play. If you you sign a non-compete, then your chances of taking your skills somewhere else go down dramatically. Which means I can treat you worse and pay you less than I might otherwise have to.

David Goldstein:

And it is, by the way, Nick. One of the things we’re trickled down economics has been totally true. These non-competes had trickled down.

Nick Hanauer:

Yes, they did.

David Goldstein:

Over the years, all the way into fast food restaurants where-

Nick Hanauer:

That’s right.

David Goldstein:

… infamously companies like Jimmy John’s had for a while forced their sandwich artists. Is that what they called them?

Nick Hanauer:

Yes, exactly.

David Goldstein:

They couldn’t take those trade secrets of how to put cold cuts on a piece of bread elsewhere. Or even more infamously, Burger King who said that had a non-compete that prevented their employees from working at other Burger Kings.

Nick Hanauer:

Right. So that you could make sure that you could continue to exploit whoever it was and they couldn’t go across the street and become a manager or whatever it was.

David Goldstein:

Or make 50 cents an hour more.

Nick Hanauer:

Yeah, it’s an incredibly egregious practice and very much in the news. Because the Federal Trade Commission has moved to ban them completely. But as always, Washington State was a bit ahead and we banned non-competes in any worker who made less than a $100,000 a year a few years ago. And our guest today is Evan Starr, who’s an assistant professor of management at the University of Maryland, but has a PhD in labor economics and studies non-competes and has done a study on the effect of Washington’s law, both on workers and businesses too. I must say that just as a matter of principle, I object to non-competes, they’re anti-competitive, bad for innovation, bad for everything except the profits of the largest enterprises. But I’ve never seen empirical data about the effect of banning non-competes. It’ll be very interesting to talk to Evan about what he found.

Evan Starr:

My name is Evan Starr, and I’m an associate professor at the University of Maryland’s, Robert H. Smith School of Business in the Department of Management and Organization. I’m a labor economist by training and a lot of my research deals with restrictive covenants, which are restrictions on workers about what they can do after they leave employment. And I’ve been interested in how those restrictions impact workers, how they impact firms, society, how we should think about regulating them, what the impact of various regulations are. And a lot of my work has been in that space over the last decade or so.

Nick Hanauer:

Evan, let’s start with the basics. What is a non-compete? How does it work?

Evan Starr:

Sure. A non-compete agreement is a term within an employment agreement, or it could be in an employee handbook. And it typically says that after a worker leaves they can’t join or start a competitor for some amount of time, typically a year or two. And often within a geographic boundary at which could be a few miles from the office, it could be the state or it could be the whole world in the most extreme case.

David Goldstein:

That sounds remarkably anti-market.

Nick Hanauer:

Anti-competitive.

David Goldstein:

Anti-competitive, yeah. That’s not what’s capitalism is supposed to be about, I thought.

Evan Starr:

It is a direct restriction on competition. Absolutely.

David Goldstein:

Yeah.

Nick Hanauer:

Do you know anything about the history of non-competes?

Evan Starr:

Absolutely. Non-competes are really old. The first non-compete case dates back to 1414.

David Goldstein:

Wow.

Evan Starr:

The famous case called the Dyer’s case.

Nick Hanauer:

No kidding.

Evan Starr:

Seriously, it’s often said that non-competes are in modern times are used for executives. But the history of non-competes goes back a long time. And what they were used in that era, this is the guild era, where a master craftsman would take on an apprentice and train them in a skill like being a mason or something like that. And after the Apprentice was trained, the master craftsman didn’t want to compete with the apprentice, the now trained apprentice in the same product market. And that’s where these agreements arose.

Nick Hanauer:

Interesting. We could do a whole podcast on that. That’s that’s an amazing fact.

David Goldstein:

We’ll do our guild episode.

Nick Hanauer:

Yeah. But tell us about non-competes today in the United States?

Evan Starr:

Non-compete agreements have been around for a long time in the United States as well. We don’t know precisely when they became common. The first national survey was done in 2014, and since then we’ve had several additional surveys. Surveys of workers, surveys of firms, surveys of certain occupations. If you want to just kind of the broad landscape, the estimates of non-compete use to vary on the low end from 16% of workers up to 50% at the very high end. Most estimates are within the 20% to 22%, 24% range.

Nick Hanauer:

One in five, one in four workers in America has been required to sign a non-compete as a provision of becoming employed?

Evan Starr:

That’s right. One in four, one in five, currently bound by one. It may be higher than that. And if you wanted to know, has a worker ever been bound by one, that number is closer to 40%.

David Goldstein:

Yeah.

Nick Hanauer:

Wow.

David Goldstein:

I’m curious, you mentioned, you said either signed a non-compete or it’s in the employee handbook. Is that in any way enforceable if they put a non-compete in the employee handbook and you actually haven’t signed a non-compete agreement?

Evan Starr:

Well, you may sign something that says, “I agree to the terms laid out in the employee handbook.”

David Goldstein:

Yeah, oh.

Nick Hanauer:

Yeah, which you naturally did not read. Tell us about your recent study. What did you study and why did you study it?

Evan Starr:

Yeah, I have a recent study that we just released with Michael Lipsitz who’s at the Federal Trade Commission in [inaudible 00:08:37] who’s a PhD student at Maryland with me. And what we were looking at is this debate on non-compete agreements, which really, as I said, dates back to the 1400’s, but has just taken off in the last few years. And one of the reasons it’s taken off, is because there’s been all of this evidence documenting the harms of non-compete agreements on workers, on markets. Some of the prior studies looked at, for example, what happened when Hawaii banned non-compete agreements for tech workers? What happened when Oregon banned non-competes for low wage workers? And all of those studies suggest that when you ban non-compete agreements for low wage workers or even high-tech workers, that workers benefit, they move jobs more frequently, their wages rise. And there’s been several studies of that variety suggesting that banning non-compete agreements is probably a win for workers.

But recently the Federal Trade Commission has now proposed banning all non-compete agreements. And there’s been significant pushback from the Chamber of Commerce and from trade associations suggesting that non-compete agreements are beneficial.

Nick Hanauer:

They’re beneficial to us, the Chamber of-

Evan Starr:

That’s right.

Nick Hanauer:

… Commerce argued.

David Goldstein:

And to society, because when the Chamber of Commerce does well, we all do well.

Evan Starr:

The arguments that the Chamber of Commerce makes are that firms need non-compete agreements for things like trade secrets, a confidential lists of clients, customers, things of that nature. If you wanted to start a business or you wanted to run your business and you hired somebody and you got to share with them the trade secrets or the client list that you’ve developed, they might take that or run across the street and start up against you. And if you don’t have non-competes, then firms might be less willing to invest in developing those trade secrets or developing those client lists in the first place. That’s the argument from a theoretical perspective. And of course, you have to set aside the fact that we already have other ways of addressing those concerns, like NDAs, agreements not to solicit clients, trade secret law, et cetera, but that’s the argument that they’re making about non-compete agreements.

David Goldstein:

Well, I mean, these are smart business people. They wouldn’t be doing this unless there was an efficiency gain. That’s the way the market works.

Evan Starr:

That’s the claim. That’s the claim. Our paper is really trying to put this to the test. And given all the harms that prior research has documented, our question is, do firms really put their money where their mouth is? And to do that, we studied a law that was passed in the state of Washington in 2020 and the law.

Nick Hanauer:

Yay, Washington. Yay, Washington.

Evan Starr:

The law is a really interesting one, because it invalidated non-compete agreements for workers making a $100,000 or less. And they tied it to inflation. I think today the number is about $116,000. And that covers roughly 80% of Washington workers. And the reason that we can study how much firms value the ability to enforce non-competes with this policy shock is because if you think about what happens, right at a 100,000, you take a worker who’s making $99,000 and in 2019 a firm in Washington has a chance of enforcing that worker’s non-compete. But in 2020 that chance is zero. Because they’re under this earnings threshold. But this is the key. The firm doesn’t have to leave that worker under the threshold. They could on their own volition give them a small raise. They could give them an end-of-year discretionary bonus to get them over that threshold so that they have the opportunity to enforce their non-compete.

You can think of it like it’s like a voluntary minimum wage. When would firms hit a voluntary minimum wage? When the games that they get from hitting that voluntary wage exceed the costs. What would you expect if firms really value the opportunity to enforce these guys non-com competes? You would expect them to give workers near a $100,000 raise. Small raise, an extreme case of a few 100 bucks, a $1,000. That’s the test. The test is do we see more workers at a 100,000 and just above after this law is passed relative to before? And our findings suggest that firms are not giving workers raises to reach these voluntary thresholds in the law.

And that’s in any industry. It’s in industries like professional technical services, it’s in manufacturing. And our conclusion with a bunch more work that we’ve done here is we also serve at attorneys in Washington to figure out what’s going on. And our broad conclusion is that for at least the 80th percentile of workers firms do not appear to value the ability to enforce their non-competes as they have revealed by not paying workers anymore to get them above that threshold.

David Goldstein:

And by comparison, this is very different from what we’ve seen with the overtime threshold where there is clear evidence that when states have raised the overtime threshold, companies have taken employees who had salaries near that threshold and were more likely to raise them over it as not to be subject to the overtime laws.

Evan Starr:

That’s right. And there’s another recent paper looking at another way to get around that, which is to change people’s job titles to make them look like they’re managerial. And so there’s a paper that finds firms very creative use of job titles as a way to skirt overtime restrictions.

David Goldstein:

Right. They clearly value skirting overtime restrictions, whereas there’s no evidence that they value enforcing these non-compete agreements. The question is, why don’t they value it? And if they don’t value it, why are they having employees sign it?

Evan Starr:

The lawyers in the survey, so I’m not a lawyer, but I joined the Washington State Bar Association for this project, and we surveyed attorneys operate in Washington. We asked them, “Why don’t employers give these workers raises?” And the attorneys told us there are two reasons. One is that firms have other tools. They have non-disclosure agreements, they have agreements not to solicit clients. They can rely on those instead of non-compete agreements. They don’t really need to use the non-compete or enforce the non-compete. The second reason is that they often don’t have to go to court to enforce non-compete agreements. And so the actual law of the land doesn’t matter that much, at least for workers at a $100,00.

And you can think about this in the following sense. Firms are still using non-compete agreements in Washington. They’re getting sued in several class action lawsuits. But the value to the firm of the non-compete is often in the chilling effect that it has on workers. A worker with a non-compete agreement, they still might have to file a lawsuit to get out of even a frivolous non-compete that is now unenforceable under the law. And often the contract itself is what chills work and mobility as opposed to what the law actually says.

David Goldstein:

So, it’s an intimidation tactic?

Evan Starr:

That’s right. And it could be that if you’re a worker and you try to move from firm A to firm B. Once firm B finds out you have a non-compete, they can also drop you because they don’t want to be sued for tortious interference.

Nick Hanauer:

But at the end of the day it’s just a trick to increase the power differential between firms and workers. And I think it’s been my experience that it works super well in many cases. And I think I’ve used this example before on the podcast, the woman who cuts my hair and works for one of the larger local hair salons. When I spoke to her about it, when we were somewhat engaged in Washington State in changing that law and eliminating non-competes, I was very surprised by how clear she was on the fact that she had signed a non-compete and she couldn’t go cut hair for somebody else, basically. Which is absolutely nuts. It’s absolutely insane to have a provision which enables a hair salon to prevent their employees from cutting hair for another hair salon. I mean, the most egregious anti-competitive behavior.

Evan Starr:

A surprising fact about hairstylists and salons is that workers in salons are the fifth most common litigant in non-compete cases.

Nick Hanauer:

That’s amazing.

David Goldstein:

Why?

Evan Starr:

Well, I think the answer is probably that if a worker develops a loyal following, then they change the power dynamic within the firm. So if a hairstyle … Everyone will follow their hair stylist to the end of the earth, then that hair stylist can leave and move to rival, and they can take all the clientele, they can start their own shop, and the firm cannot control what the clients do. The firm, they’re limited, they’d have less control at least. But what they can do with the stylists is they can say, “Hey, you can’t do this.” And that thereby controls the clients.

David Goldstein:

That’s pretty much back to the guilds of the 15th century.

Evan Starr:

Very much so. Yes.

David Goldstein:

You had mentioned earlier on that when we ban non-competes, there’s evidence showing that this is good for workers, higher wages, it’s easier for them to move jobs. In your recent report you also looked at what was the impact on businesses. Obviously, they claim they were imposing these non-competes because there was some economic advantage to it. Did banning non-competes or limiting them in Washington State have any negative impact on these companies?

Evan Starr:

We found that there were no effects on the value of publicly traded companies from this ban. Which again, covered about 80% of the workforce. And there’s several other anecdotal pieces that can help us understand maybe why that is. If you think about some of the main firms operating in Washington, think about Microsoft for example. They deal with a ton of sensitive information. Well, after this law passed, Microsoft said, “Okay, well, we’re just going to drop non-compete agreements for everybody, except for our topmost executives.” So this is Microsoft, a very savvy tech company saying, “We don’t need these,” right?

David Goldstein:

Yeah.

Evan Starr:

You also have Amazon, Amazon was actually reportedly involved in setting the threshold in Washington. What do you make of that? If a firm is involved in setting a threshold that covers 80% of workers in Washington, in some sense, what that tells you is that Amazon also revealed the point at which they don’t care. Here we have two major tech companies telling us that they don’t care about non-compete agreements for a large chunk of the workforce.

Nick Hanauer:

If you take out the warehouse workers who make less than $80,000 a year, no one at Amazon headquarters makes less than $80,000 a year, right?

Evan Starr:

I’m not sure, but I assume that people at Amazon are making a lot more money than that.

Nick Hanauer:

Yeah, correct.

Evan Starr:

At least, at the headquarters.

Nick Hanauer:

Interesting. Obviously, the big news in the non-compete space is the effort by the FTC to ban all non-competes nationally. What’s your perspective on that?

Evan Starr:

Yeah, I think that the way I see the paper that we’re talking about in Washington and in this all out ban, is that the Washington paper suggests that it’s pretty straightforward to justify a ban covering at least 80% of workers. The only question then is the remaining 20%. And presumably at some point firms would really care, maybe top executives. And I think that’s where the debate really should be. These are executives who have the keys to the kingdom, so to speak. How do we feel about non-compete agreements for those workers? And I think people come out on two sides. One is, “Okay, the executives have all this information and know how they also have attorneys negotiating their contracts. We should feel fine about executives having non-compete agreements.”

And then there’s the other side which says, “Look, even a non-compete with an executive can still be harmful.” And there’s a recent paper by [inaudible 00:21:02], which is forthcoming in Econometrica, which is one of the most impossible to get into economics journals. And she studies the optimal regulation of non-compete agreements in the market for executives. And her finding is that the optimal policy for executives is close to a ban. And you have to think about why that is. What’s her main argument? The argument is that non-compete agreements impose costs on others who are not party to the contract. The idea is this, take an executive, they’re at firm A, and they’ve negotiated over this contract, they’ve looked at it, they’ve come to an agreement on what they think is best for them and firm A. And then firm B comes along and it turns out firm B is a much better fit for the executive. The executive could create so much more value at firm B than at firm A, but the executive cannot move to firm B because of the non-compete agreement.

And what happens in this case is you have a situation in which there’s a privately agreed two contract, which is mutually beneficial, but there’s third-party harm. There’s harm to another party who was not part of the bargaining process over that agreement. And that could be firm B. It could also be if that executive is going to go start a new firm and create a new product that was going to exist and benefit consumers, that also includes consumers, they could also be harmed by those agreements. And there’s a paper by Mike Lipsitz and Mark Tremble that makes that point. And the whole idea is that maybe non-compete agreements, even for executives, can be harmful, because they impose costs that the rest of us bear.

Nick Hanauer:

Yeah. Well, absolutely. And I think that non-competes are a reflection of a neoliberal economic view, that the most important thing is the success of specific individual firms. And that as long as the big companies are doing well, we should be happy. When in fact, it’s quite clear that there’s a very big distinction between what is good for individual capitalists and what’s good for capitalism generally. And I think what those two other papers point to is that the economy overall massively benefits from more robust competition. And if highly skilled people cannot leave their current employer to go deploy those skills in different and better ways, then the rate of innovation slows and the number of choices that consumers have slows. And just generally, the only thing that happens is that the existing powerful firms get more powerful at the expense of the broader economy.

David Goldstein:

So, it’s an incumbency protection policy?

Nick Hanauer:

Rocket.

David Goldstein:

Yeah.

Evan Starr:

Yeah. That’s what the evidence indeed suggests. And I’ll just highlight here that there are two examples that I think really capture these ideas. And one is the case of Silicon Valley, and of course California made non-competes unenforceable in 1872. And there’s this whole debate about the rise of Silicon Valley and the role of non-competes. I think it’s worth pointing out that from the FTCs perspective, executives in Silicon Valley have figured out how to deal with these agreements. It doesn’t seem to have slowed Silicon Valley. Let’s be clear, I don’t think any of us are advocating for trade secret theft. We have other laws to deal with that, you can have a different business idea in your same industry and not be allowed to pursue it. I think the other thing I want to highlight is that there’s only one occupation in the whole United States for which non-competes have been prohibited for over 50 years. And that occupation is the practice of law. Lawyers themselves are prohibited from entering into non-compete agreements in every state. And it’s really fascinating, because lawyers-

Nick Hanauer:

I wonder why.

Evan Starr:

This is it. The justification for the lawyer non-compete ban is that the relationship between a client and an attorney is sacred. And if attorney has a non-compete agreement and they try to change employers and they have to sit out of the labor market, then that non-compete has just severed the relationship between the client and the attorney. And that relationship-

Nick Hanauer:

And their money.

Evan Starr:

… is sacred.

Nick Hanauer:

And their money. That the client, the attorney, and their paycheck. And attorneys would prefer to keep those paychecks rolling.

David Goldstein:

Here’s the efficiency, I’m going to make the chamber’s efficiency argument, Nick. This is it. The attorneys can’t have non-compete agreements, because that would interfere with their ability to enforce other companies non-compete agreements.

Nick Hanauer:

Non-compete agreements. Exactly. Unbelievable. Well, Evan, that is a fact. Another fact I did not know, you’re full of really interesting facts. Of course, attorneys are exempt.

Evan Starr:

You’ll notice it’s always rich to hear them talking about how much we need these agreements when they just changed firms, they got to start their new firm. And of course, if they had non-competes, none of that would’ve been possible, at least much more difficult.

David Goldstein:

I just did not know that. It is just so rich. Just cannot wait for the hearings to take place where all these attorneys are going to be arguing on behalf of industry that non-competes should exist without having them things apply to them. It’s just, it’s too good. It’s just too good.

Evan Starr:

Well, I think the key point is that the American Bar Association justified this prohibition because of harm to a third party, the clients.

David Goldstein:

Right.

Evan Starr:

Right. And I think that is the same perspective of the FTC, that non-compete agreements are unfair methods of competition because they harm others who are not party to that agreement, namely the firm and the worker. And I think that that logic is actually the same. And that’s how you get to an all out ban as opposed to carving out executives.

Nick Hanauer:

And by the way, capitalism offers many ready answers to these challenges of having people leave, mostly having to do with just paying them more. If you don’t want your employees to leave, you should treat them kindly and pay them well.

David Goldstein:

Yeah. Maybe show them the respect of not imposing a non-compete agreement.

Nick Hanauer:

Yes, exactly.

David Goldstein:

Instead of trying to intimidate. Because what you really want in an employee is somebody who’s totally intimidated to stay. That’s why they’re working for you because they’re afraid of you.

Nick Hanauer:

Yeah, exactly. Evan, we always ask a benevolent dictator question. I think I know the answer. If you were in charge, what would you do, politics aside, with respect to this?

Evan Starr:

I prefer to be a researcher and not a policymaker. I don’t envy the decision that they have. But given that the work that I’ve done in this space, my sense is that you could justify a ban. The existing evidence could justify a ban on non-compete agreements, and if not a full ban, then a ban for nearly all workers. There are some gaps in the literature that I think it would be nice to have some more evidence to fill. But I think that the existing body of evidence is largely on the FTC side here.

Nick Hanauer:

All right. That was a timid answer, but we’ll accept it.

Evan Starr:

Thank you.

Nick Hanauer:

And one final question, why do you do this work?

Evan Starr:

I was interested in finding a dissertation topic. And this is about 2011 or so. And I learned about non-compete agreements and just became fascinated by the history. And you had a bunch of legal scholars debating this for a long time. It goes back forever. And you have people talking about non-competes on the rise of Silicon Valley. You have people talking about non-competes modern day slavery. And so when I started looking at the empirical literature, I had found some work by Matt Marks, by Olav Sorenson, Lee Fleming. But it felt to me like we were missing the big picture here. And really the last decade of my research life has been trying to understand how the fine print of our employment contracts matters for workers and what policy makers can do about it.

Nick Hanauer:

Fascinating. Well, thank you for being with us. Thank you for doing the study. It’s actually really interesting. Although, I suppose on reflection, not that surprising that firms didn’t turn themselves inside out when these were imposed. And I think you made a very shrewd choice in studying this topic. Because it’s very relevant today. Very important.

Evan Starr:

Thanks so much. Yeah, it’s been an area where you just get deeper and deeper into it and it becomes more and more interesting, so love it. I’m really enjoyed studying it.

Nick Hanauer:

So Goldie, we talk about middle out economics all the time. And in the outro of these podcasts we’re going to try and center our discussions a little bit more around that. And there very much is a middle out moment here around non-competes. I think it’s incredibly straightforward to understand that from a middle out economics perspective, the fastest way to grow the economy is from the bottom up and the middle out. And that means that the less power, large corporate interests have, and the more power workers and smaller enterprises have, the more dynamic, the more competitive, the more effective markets become.

David Goldstein:

Right.

Nick Hanauer:

And non-competes are just the canonical example of the wrong thing to do if you want to have robust economic growth. Because it’s literally sclerotic.

David Goldstein:

And there’s an important economic principle here that we’ve talked about before that’s really at the heart of middle out. And this is not just a moral principle, it is an economic one. And that is what we call the inclusionary principle.

Nick Hanauer:

That’s right.

David Goldstein:

Which is obviously we say the economy grows from the middle out and the way to grow the middle class is to include more people in it.

Nick Hanauer:

Correct.

David Goldstein:

Non-competes are exclusionary.

Nick Hanauer:

They are.

David Goldstein:

They limit the ability of workers to compete for higher wages, to move to jobs that better suit them, either because it better suits their skills or their interest or is closer to home, so it’s a shorter commute. And what you see in the empirical evidence is the inclusionary principle at work in all aspects of the economy. We see that workers do better. They are earning more money, and they are more capable of switching jobs when they want to.

We see that it is better for third parties, because it’s by including more people and allowing employees to move around. It is more efficient for the economy, it’s more competitive, it’s more innovative. And then we also see that it’s not bad for these companies either. That in fact, these non-compete agreements were never efficient and they never created growth within these companies. And we know that because they don’t value them. And the stock markets have not brought down the value of their stock at all when this ban was put in place, so it is a great example of the inclusionary principle in action.

Nick Hanauer:

Absolutely.

David Goldstein:

Include more people in the economy, it’s better for everybody.

Nick Hanauer:

It is, it is indeed. The whole thing about how old non-competes are’s an absolutely fascinating fact. Just of course, it makes perfect sense, particularly in the Guild age, but we no longer work in one of those. And of course, the whole lawyer’s being exempt is just too, it’s too good, isn’t it?

David Goldstein:

The Lawyer’s Guild writing its own rules.

Nick Hanauer:

God.

David Goldstein:

Of course.

Nick Hanauer:

Of course.

Speaker 4:

Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer. Follow our writing on Medium at Civic Skunk Works, and peek behind the podcast scenes on Instagram @pitchforkeconomics. As always, from our team at Civic Ventures, thanks for listening. See you next week.