I agree with Tylerthat the FTC Non-Compete Ban is too broad and is not suitable for areas where the disadvantages outweigh the advantages. Additionally, the authority of the FTC to promulgate this rule, rather than that of Congress, is questionable.
However, I don’t think banning non-competes is without merit. The reason is not Twitter’s usual economic view that non-compete is bad for workers. Indeed, certain non-competition leaves, known as “gardening leave”, pay the worker during the non-competition period. It looks pretty good! More generally, non-competes constitute only one element of salary negotiation, along with hours, health and retirement benefits. As a result, the FTC is completely wrong to think that banning non-competes will cause wages to increase – the most immediate effect will be a reduction in wages. Indeed, more workers will be willing to work at lower wages, precisely to the extent that non-compete constitutes a burden. I can’t have both. Instead of being bad for workers, my skepticism about non-competes is that they are bad for the industry.
The problem with non-competes is that every company wants a non-compete on the workers it fires, but no company wants a non-compete on the workers it hires. However, companies only control the conditions under which they hire their workers, so it is possible for each company acting in its own interest to create a situation that is in no one’s interest. Or, to put it another way, companies can approve the decision to ban non-competes because it is a blanket agreement, companies cannot restrict their own former employees but they have the option to recruit freely from their competitors.
More generally, worker mobility often leads to externalities. Like I written earlier, ideas are in heads and if we don’t move our heads, often the ideas don’t move either. THE the innovation that results from mobility is a public good. Non-competes are a type of intellectual property, let’s call it intellectual property. Once again, companies want to lock in their intellectual property, but they also want to use other companies’ ideas. Companies only control the first decision and not the second, so intellectual property in general poses a prisoner’s dilemma problem, which is one reason why intellectual property in the United States is too strong (see THE Tabarrok curve) and non-competes are part of this package. Ultimately, if the effects of innovation are large, wages might increase, but these effects would affect more or less all workers and not specifically those who do not compete.
Governments are not good at the fine details of optimizing intellectual property, which is why a heavy-handed approach is perhaps the best solution we can expect. Non-competes are also not a major problem for most businesses, even those that use them. Given the above, I’m willing to give it a try.
