We must protect and strengthen the right to collective bargaining so that workers can increase their wages and achieve upward mobility. However, our research shows that there is another important way to increase employee power: making it easier for them to find new, better-paying jobs.
High demand from employers has already allowed workers to move up to better jobs, but this hot labor market may not last much longer – especially with the possibility of a recession on the horizon. Policymakers have the tools to enable workers to find new jobs even when market conditions are not tilted in their favor. Here are some actions the government might consider:
Antitrust laws and enforcement have traditionally focused on increasing competition for products or services such as oil, healthcare or telecommunications. But it is important that our labor markets are also sufficiently competitive. In a competitive labor market, employers must compete with each other for workers on pay, benefits, or working conditions. Research shows that workers are more likely to earn lower wages when jobs are concentrated with a small number of employers.
Policymakers could begin to scrutinize mergers for signs that they might reduce competition for workers. Regulators should keep a close eye on mergers of large companies that compete for the same workforce in a given job market. For example, one study found that hospital mergers led to lower wages for nurses and pharmacists.
President Biden last year signed an executive order aimed at boosting competition throughout the economy – including job markets. Under the guidelines, the order encourages the US Department of Justice and the Federal Trade Commission to step up enforcement of antitrust measures that prevent employers from sharing payroll and benefit data and potentially colluding to suppress wages.
Limit or eliminate non-compete clauses
Non-competition clauses prevent workers from changing their current employer to a competitor or even starting their own business. These agreements can be particularly damaging to low-wage workers, who are more likely to experience a raise through a change of employer than through an internal promotion. Non-competition clauses reduce income and job mobility and widen the racial and gender pay gap. And they’re not uncommon in low-wage industries, where more than one in ten low- and middle-income workers is bound by a non-compete obligation.
Several states have banned non-compete laws for low-wage or hourly workers — and some have banned them altogether. Bipartisan support is emerging at the federal level to limit non-compete clauses to cases where they are necessary to dissolve a partnership or sell a business. More broadly, policymakers should consider banning any agreement that impedes an individual worker’s ability to change jobs or careers.
Reform professional licensing laws
The requirements for a work permit have grown significantly over the decades: in 1950, around 5% of employees required a permit, today it is around a quarter. The laws are designed to protect consumers in areas such as healthcare or construction where an unlicensed doctor could cause serious harm to public health and safety. They also signal to consumers that a practitioner meets a minimum standard of quality and skill.
However, licensing also limits worker options and geographical mobility, as requirements vary widely from state to state. In addition, workers often have to pay the upfront cost of obtaining a license and the ongoing cost of renewing it. Because licensing serves as a barrier to entry, it can reduce employment opportunities and depress wages for unlicensed workers with similar levels of education and experience.
On the other hand, because they constrain the labor supply, licenses are incredibly valuable to workers who acquire them. Licensed workers typically earn higher wages than their unlicensed counterparts and, in certain cases, provide workers with guidelines for professional development and training. Licensing has also been found to reduce the racial and gender pay gap.
The solution here is not to abolish professional licensing altogether, but rather through legislative reform that allows licensing to be portable across state lines and limits licensing to areas with legitimate risks to public health and safety.
Correct the information asymmetry between employees and employers
Employers often know far more about employees than employees do about jobs or employers. When workers apply for a job, they often encounter an information vacuum related to wages, benefits, working hours or workplace culture, which has real consequences for their wages and their ability to advance their careers. A study from Germany found that low-paid workers were more likely to believe other jobs paid low wages, even when they didn’t.
Access to more information about employers and specific jobs could empower workers to apply for more vacancies — or at least give them the information they need to decide whether to apply at all.
At the same time, workers’ right to withhold information such as their own pay history could put them under pressure when negotiating wages. Dozens of states and cities have enacted wage growth bans, leading to above-average wage increases for women and nonwhite workers.
Of course, unions are an important piece of the puzzle when it comes to empowering workers, but they are not the only piece. Policy makers should support a worker’s chances of numerous external job offers – even if the market turns, which is inevitable.