Competition in labour markets, the renewed interest of the competition authorities

What impact do the recent developments in the competition authorities' approaches to competition in labour markets have on market efficiency and fairness? Vice President, Michele Avagliano discusses this in a recent article for Milano Finanza. He also explored the topic in a presentation at the XVI Treviso Antitrust Conference “Antitrust between EU Law and National Law” on 7 June.

This article was originally published for Milano Finanza here. The views expressed in this paper are the sole responsibility of the author and cannot be attributed to Compass Lexecon or any other parties.

In recent years, competition authorities – first in the US and then in Europe – have shown a marked increase of interest in the labour market, analysing the potential negative effects on wages of three types of practices: no-poach and wage-fixing agreements, non-compete clauses, and mergers between companies with the ability to influence labour markets.

The first type of practice concerns competing companies agreeing not to “steal” each other's employees (no-poach) or to fix (downward) their wages. In the United States, in the past decade Silicon Valley employees filed a class action lawsuit concerning no-poach agreements between tech companies from which they were affected. In Europe, the French competition authority recently investigated certain consulting and IT services companies for similar practices, and the European Commission has just published a policy brief explaining its position on the analysis of such practices.

The second type of practices, non-compete clauses, concerns employment contracts that restrict the employees' ability to carry out professional activities with competitors after the end of their employment. US studies have revealed that such clauses are very common and concern not only professionals who have had access to confidential information, but also workers employed in manual and elementary jobs. A study recently published by Boeri, Garnero and Luisetto shows that the situation is similar even in a rigid and highly regulated labour market such as the Italian one. In April 2024, the US Federal Trade Commission defined non-compete clauses, an unfair method of competition and proposed an almost absolute ban of such clauses.

Regarding the third type of practices, i.e. mergers between companies with the ability to influence the labour market, in the last year the US competition authorities have investigated the merger between the supermarket chains Kroger and Albertsons and the merger between the fashion companies Tapestry and Capri, arguing that – among other things – they could give the merged entities market power over workers that could negatively influence their wages. In Europe, the Dutch competition authority has just started an investigation into the merger between the media companies RTL and DPG, citing among the reasons the possible depressive effects of the merger on journalists' wages.

Practices such as 'no-poach' agreements or non-compete clauses can have pro-competitive justifications from an economic point of view. For example, they may incentivise companies to invest in the training of workers, or lead to lower prices of the products sold by the companies that engage in those practices. These effects must be compared with the potential depressive effects on wages due to the restriction of workers' movements, and it is therefore not certain that the net economic effects are negative. However, competition authorities are likely to have strong concerns about these practices, especially if similar pro-competitive effects can be achieved with alternative, less problematic practices.

With regard to mergers, the economic tools to understand their impact on labour markets are similar to those normally used to analyse their effects on product markets. For instance, the economic analysis will start with an assessment of what are the relevant labour markets and what competitors may represent an alternative for workers in those markets after the merger. Finally, it is relevant to understand whether any anticompetitive effects of the merger on workers' wages can be balanced by decreases in the prices of the products offered by the merging companies, in order to get a complete picture of the possible effects of the merger and of the related competition law risks.