Market concentration 'holding back worker wages'

The federal minister responsible for competition policy has raised concerns about restrictive terms in employee contracts that keep wages depressed, and has called on the consumer watchdog to investigate. 

Assistant Minister for Competition Andrew Leigh is worried that "non-compete clauses" are preventing job mobility and keeping wages low, and has asked the Australian Competition and Consumer Commission to look into the issue.

He has also flagged no-poach clauses in franchise agreements as a barrier to job switching, and says the prevalence of such terms is not well understood.  

Speaking in Melbourne on Thursday, Dr Leigh pointed to evidence that Australia's heavily concentrated markets are hurting workers, especially in the regions.

He said that in markets where there is limited employer choice, workers have less bargaining power to swap jobs for better pay and conditions with another employer. 

Dr Leigh said this was clearly evident in regional areas, where workers often have very limited choices when it comes to employment.

He pointed to a new Treasury working paper that measured the relationship between wages growth and market concentration before the pandemic. 

The research found wages tended to be lower in concentrated markets, and although these markets weren't getting more concentrated, the downward pressure on wages was intensifying.

"For any given level of concentration, its negative impact on wages has more than doubled compared to the mid-2000s," Dr Leigh said.

This suggests employer market power has influenced slow growth over the past decade, he said, with the Treasury analysis suggesting it has lowered wages by about one per cent between 2011 and 2015. 

Dr Leigh said non-compete and no-poach clauses in employee contracts are a particular concern for dynamism and mobility in the labour market.  

In Australia, non-compete clauses - which can stop workers joining competitors for a period of time - are only enforceable if they can be shown to reasonably protect a legitimate business interest.

But Dr Leigh said there was evidence to suggest non-compete clauses can still limit worker mobility, including from a lack of understanding about their legal rights, and the financial risk of taking a former employer to court.

In the US, officials are considering a ban on non-compete clauses across the economy to improve wage growth and drive innovation.

Dr Leigh says no-poach clauses - which are arrangements between employers to not recruit the other's employees - are used by major franchisors operating in Australia, including McDonald's, Bakers Delight and Domino's.

"Most McDonald's workers would have no idea about this clause, which directly affects their ability to get a better-paying job at another McDonald's store," he said.

Independent economist Chris Richardson welcomed a possible crackdown on non-competes.

"If US estimates of the benefit to living standards from tackling non-competes translate to (Australia), that would imply Australian families being better off to the tune of more than one per cent of national income if we have the courage to tackle non-compete clauses here too," he wrote on Twitter. 

Dr Leigh has delivered a series of speeches on the lack of competition in Australia's economy, with almost every Australian industry - including department stores, newspapers, banking and supermarkets - dominated by a few big players.

When firms have few competitors, they are able to charge higher prices because consumers have no other choice but to buy their products.