There are some good whodunits in the field of economics. One of my favourites is the question of why real wage growth has slowed down in a range of different countries over the past two decades. Economists have identified several likely culprits, from the slowdown in global productivity growth to the decline of trade unions. To that list I would like to add one more suspect: lawyers. Or rather, the small print that lawyers write.Until recently, economists haven’t paid much attention to the Ts and Cs of employment contracts. But what is written in these documents is quietly shaping how labour markets work — and not necessarily for the better.
The story starts in the US, where economists and law professors such as Evan Starr and Orly Lobel have mapped out the extent to which employment clauses traditionally associated with top executives have actually spread across the workforce. Non-disclosure agreements; non-disparagement clauses; non-compete clauses — many American workers are now tangled in a thicket of the stuff.
Non-competes have caught the most attention. Almost a fifth of American workers are bound by these clauses, which ban them from going to work for, or starting, a competing business within a certain period of time after leaving their job. They are more common among professionals but the research suggests roughly 14 per cent of people earning less than $40,000 are also subject to them. The Federal Trade Commission took legal action this year against a security company which, according to the FTC, had banned its low-paid guards from working for a competing business within a 100-mile radius of their job site for two years after leaving the company. The guards were threatened with a $100,000 penalty if they broke the clause.