Member Article

A report published on 25 January 2024 by the Competition and Markets Authority (CMA) reaches the conclusion that contrary to the situation in the USA, aggregate employer market power has not increased in the UK in recent decades.

Economic theory identifies that where employer market power is high (typically because in an area there are only a few major employers and limited other choices for workers), the workers are paid less, employers employ fewer workers and production output is lower. A find in the report, again contrary to the situation in the USA, is that if anything UK workers receive a slightly higher share of their contribution to output than fifteen years ago. While this overall picture comes out as a positive, compared to the situation in the USA, there are also negatives and questions raised.

The report finds large differences across regions, occupations, and firms. For example, wages are on average 10% lower in the most concentrated 10% of labour markets.  Manufacturing, transport and storage, and financial services are particularly concentrated employer markets.

In relation to contributory factors, the role of non-competes was considered. Roughly one in four workers are covered by non-compete clauses. A quarter of surveyed workers with a non-compete clause believe it has made it harder for them to leave their current employer to join a competitor. The gig economy seems to have an unclear influence, noting that in fact only about 5% of total employment is in the gig economy. However, 8% of such workers are earning below or at the minimum wage. The offer of remote and hybrid working has stabilised to about a fifth of all jobs posted. It is noteworthy that on average surveyed workers see hybrid work as worth about five to ten percent of their wage.

In the report the CMA raises open questions for researchers and policymakers: what lies behind the geographical differences in labour market concentration? How do mergers and acquisitions affect labour market concentration and wages in the UK? What would the impact of changing labour market policies (for example, on non-compete agreements, pay setting and the minimum wage) be for worker mobility and wages?

We note that separately non-compete clauses are currently a focus for policy by the CMA and some other competition authorities, for example in the European Union. This is the subject addressed in the Shoosmiths’ podcast ‘Competition and Employment Laws Overlap’ (see here). The UK’s Department for Business and Trade recently proposed legislation that would limit the use of non-compete agreements (see here).

 

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