VOX noted that when you adjust for inflation “wages for the average worker have risen only by 3 percent since the 1970s — and have actually declined for the bottom fifth.” [original link maintained]

Monopolies kill innovation and eliminate competition, but have they caused wages to decline?

Intuitively, we would expect corporations to pay as little as they can to make more money. This is standard stock market logic that generates toxic waste lakes and sends over 118 billion pounds of e-waste to the dumpster every year.

And we’re not wrong.

When an industry consolidates there is less competition for both buyers and workers. Studies have shown that fewer competitors result in higher prices. But what about wages? As would be expected, the corporations will pay less in a consolidated market. A paper found that “25th to the 75th percentile of the labor market concentration distribution reduces wages by 17 percent”.

Another study examined how consolidation in the US healthcare industry impacted wages.: “Among the top 25 percent of concentration-increasing mergers, they found that the resulting wage growth was 1.1 percentage points lower for skilled nonmedical workers and 1.7 percentage points lower for nursing and pharmacy workers than it would have been otherwise. Average annual wage growth in the U.S. hovers between 3 and 4 percent.”

How do monopolies achieve this feat?

This post explores the use of non-compete clauses in killing people’s paychecks.

#4 Force employees to sign a non-compete clause

During my years as a contractor, you would sometimes work through a “headhunting agency” to land a job with a company. The headhunter who had the relationship with the companies would take a cut of what you charged for the “service” of connecting you with the company. One agency would take half of what you charged – even though you’re doing all the work. Given this reality, what’s to stop me from working directly with that company after my initial contract is done? And that’s where they insert a non-compete clause, which prevents me from “competing” with the agency. This way if I needed to renew the contract, I would be forced to give them their cut.

How common is this practice?

A survey of 795 people found nearly 30% of workers who above the median were covered by a non-compete clause. Another study found that 43% of engineers were bound by a non-compete clause. What’s surprising is that this was also implemented for low wage workers. The initial study found that 21% of workers below the median income had to sign a non-compete clause. In fact, Alan Kreuger (Professor of Economics at Yale) found:

“Non-compete agreements have even become common in the fast food industry. For example, the sandwich chain Jimmy John’s, with 2,000 restaurants, until recently used a non-compete clause that prohibited its employees from working at any other restaurant that sells “submarine, hero-type, deli-style, pita, and/or wrapped or rolled sandwiches” within two miles of a Jimmy John’s shop while they were employed at a Jimmy John’s and for up to three years afterwards.”

How could Islam Economics Address this?

In Islam, it is illegal to have non-compete clauses as Allah (swt) revealed: “But Allah has permitted trade” [TMQ 2:275].

Consequently, if someone wants to limit that trade, they will need an evidence (daleel) to show that such a clause was authorized. And since there is none, non-compete clauses are not permitted.

In sha Allah, the next post will explore anti-poaching policies.