[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
ANTITRUST AND ECONOMIC OPPORTUNITY: COMPETITION IN LABOR MARKETS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ANTITRUST, COMMERCIAL AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
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TUESDAY, OCTOBER 29, 2019
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Serial No. 116-61
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Printed for the use of the Committee on the Judiciary
Available via: http://judiciary.house.gov
ANTITRUST AND ECONOMIC OPPORTUNITY: COMPETITION IN LABOR MARKETS
ANTITRUST AND ECONOMIC OPPORTUNITY: COMPETITION IN LABOR MARKETS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ANTITRUST, COMMERCIAL AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
TUESDAY, OCTOBER 29, 2019
__________
Serial No. 116-61
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via: http://judiciary.house.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
45-126 WASHINGTON : 2021
COMMITTEE ON THE JUDICIARY
JERROLD NADLER, New York, Chair
MARY GAY SCANLON, Pennsylvania, Vice-Chair
ZOE LOFGREN, California DOUG COLLINS, Georgia, Ranking
SHEILA JACKSON LEE, Texas Member
STEVE COHEN, Tennessee F. JAMES SENSENBRENNER, Jr.,
HENRY C. ``HANK'' JOHNSON, Jr., Wisconsin
Georgia STEVE CHABOT, Ohio
THEODORE E. DEUTCH, Florida LOUIE GOHMERT, Texas
KAREN BASS, California JIM JORDAN, Ohio
CEDRIC L. RICHMOND, Louisiana KEN BUCK, Colorado
HAKEEM S. JEFFRIES, New York JOHN RATCLIFFE, Texas
DAVID N. CICILLINE, Rhode Island MARTHA ROBY, Alabama
ERIC SWALWELL, California MATT GAETZ, Florida
TED LIEU, California MIKE JOHNSON, Louisiana
JAMIE RASKIN, Maryland ANDY BIGGS, Arizona
PRAMILA JAYAPAL, Washington TOM McCLINTOCK, California
VAL BUTLER DEMINGS, Florida DEBBIE LESKO, Arizona
J. LUIS CORREA, California GUY RESCHENTHALER, Pennsylvania
SYLVIA R. GARCIA, Texas BEN CLINE, Virginia
JOE NEGUSE, Colorado KELLY ARMSTRONG, North Dakota
LUCY McBATH, Georgia W. GREGORY STEUBE, Florida
GREG STANTON, Arizona
MADELEINE DEAN, Pennsylvania
DEBBIE MUCARSEL-POWELL, Florida
VERONICA ESCOBAR, Texas
PERRY APELBAUM, Majority Staff Director and Chief Counsel
BRENDAN BELAIR, Minority Staff Director
------
SUBCOMMITTEE ON ANTITRUST, COMMERCIAL AND
ADMINISTRATIVE LAW
DAVID N. CICILLINE, Rhode Island, Chair
JOE NEGUSE, Colorado, Vice-Chair
HENRY C. ``HANK'' JOHNSON, Jr., F. JAMES SENSENBRENNER, Jr.,
Georgia, Wisconsin, Ranking Member
JAMIE RASKIN, Maryland KEN BUCK, Colorado
PRAMILA JAYAPAL, Washington MATT GAETZ, Florida
VAL BUTLER DEMINGS, Florida KELLY ARMSTRONG, North Dakota
MARY GAY SCANLON, Pennsylvania W. GREGORY STEUBE, Florida
LUCY McBATH, Georgia
SLADE BOND, Chief Counsel
DANIEL FLORES, Minority Counsel
C O N T E N T S
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Tuesday, October 29, 2019
Page
OPENING STATEMENTS
The Honorable David N. Cicilline, Chair of the Subcommittee on
Antitrust, Commercial and Administrative Law from the State of
Rhode Island................................................... 1
The Honorable James Sensenbrenner, Ranking Member of the
Subcommittee on Antitrust, Commercial and Administrative Law
from the State of Wisconsin.................................... 3
WITNESSES
Panel One
The Honorable Noah Phillips, Commissioner, Federal Trade
Commission
Oral Testimony................................................. 5
Written Testimony.............................................. 8
Doha Mekki, Counsel to the Assistant Attorney General, United
States Department of Justice Antitrust Division
Oral Testimony................................................. 16
Written Testimony.............................................. 18
Rahul Rao, Assistant Attorney General, Washington State Office of
the Attorney General
Oral Testimony................................................. 26
Written Testimony.............................................. 28
Panel Two
Sanjukta Paul, Assistant Professor of Law, Wayne State University
Oral Testimony................................................. 48
Written Testimony.............................................. 51
Ioana Marinescu, Assistant Professor, University of Pennsylvania
School of Social Policy and Practice
Oral Testimony................................................. 59
Written Testimony.............................................. 61
Evan Starr, Assistant Professor of Management and Organizations,
University of Maryland Robert H. Smith School of Business
Oral Testimony................................................. 67
Written Testimony.............................................. 69
Richard L. ``Rick'' Masters, Special Counsel, National Center for
Interstate Compacts, The Council of State Governments
Oral Testimony................................................. 76
Written Testimony.............................................. 78
Kate Bahn, Director of Labor Market Policy, Economist, Washington
Center for Equitable Growth
Oral Testimony................................................. 84
Written Testimony.............................................. 87
Robert Topel, Isidore & Gladys Brown Distinguished Service
Professor of Economics, The University of Chicago Booth School
of Business
Oral Testimony................................................. 93
Written Testimony.............................................. 95
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Items submitted by the Honorable David N. Cicilline, Chair of the
Subcommittee on Antitrust, Commercial and Administrative Law
from the State of Rhode Island for the record
Statement from the Honorable Jerrold Nadler, Chair of the
Committee on the Judiciary from the State of New York........ 110
Statement from the Honorable Doug Collins, Ranking Member of
the Committee on the Judiciary from the State of Georgia..... 116
APPENDIX
Items submitted by the Honorable David N. Cicilline, Chair of the
Subcommittee on Antitrust, Commercial and Administrative Law
from the State of Rhode Island for the record
An article entitled ``Antitrust, the Gig Economy, and Labor
Market Power,'' by Marshall Steinbaum, submitted by Sanjukta
Paul, Wayne State University................................. 124
An article entitled ``The Enduring Ambiguities of Antitrust
Liability for Worker Collective Action,'' submitted by
Sanjukta Paul, Wayne State University........................ 144
An article entitled ``Fissuring and the Firm Exemption,''
submitted by Sanjukta Paul, Wayne State University........... 224
An article entitled ``The Politics of Professionalism:
Reappraising Occupational Licensure and Competition Policy,''
Annual Review of Law and Social Science...................... 247
A letter from the National Council of State Boards of Nursing.. 269
An article entitled ``Where are the No-Poach Prosecutions DOJ
Promised,'' Law360........................................... 272
A paper entitled ``Accommodating Capital and Policing Labor:
Antitrust in the Two Gilded Ages,'' Maryland Law Review...... 275
An amicus brief in the case ``Llacua v. Western Range
Association,'' submitted by Open Markets Institute........... 338
A submission from Open Markets Institute, dated September 13,
2019....................................................... 357
A petition for rulemaking to prohibit worker non-complete
clauses from Open Markets Institute and labor leaders...... 365
ANTITRUST AND ECONOMIC OPPORTUNITY: COMPETITION IN LABOR MARKETS
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Tuesday, October 29, 2019
House of Representatives
Subcommittee on Antitrust, Commercial and
Administrative Law
Committee on the Judiciary
Washington, DC
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2141, Rayburn House Office Building, Hon. David Cicilline
[Chair of the subcommittee] presiding.
Present: Representatives Cicilline, Neguse, Johnson,
Jayapal, Scanlon, McBath, Sensenbrenner, Buck, and Steube.
Staff Present: David Greengrass, Senior Counsel; John Doty,
Senior Advisor; Madeline Strasser, Chief Clerk; Moh Sharma,
Member Services and Outreach Advisor; Amanda Lewis, Counsel;
Joseph Van Wye, Professional Staff Member; Lina Khan, Counsel;
Slade Bond, Chief Counsel; Matt Robinson, Counsel Daniel
Flores, Minority Chief Counsel; and Andrea Woodard, Minority
Professional Staff.
Mr. Cicilline. This Subcommittee will come to order.
Without objection, the Chair is authorized to declare recesses
of the Committee at any time.
We welcome everyone to our hearing on the state of
competition in labor markets, and I'll now recognize myself for
an opening statement.
Today's hearing is an opportunity to examine the state of
competition in labor markets, as well as ways to promote the
economic opportunity of hardworking Americans through the
robust enforcement of our antitrust laws. Across the political
spectrum, Americans know that the economy's not working for
them. They feel it in every paycheck, every job application,
and every credit card payment.
Nobel Laureate Joseph Stiglitz described this as, and I
quote, ``a widespread sense of powerlessness, both in our
economic and political life. We seem no longer to control our
own destinies,'' end quote. That's because for too long waves
of consolidation have decimated jobs and wages, while rigging
the economy against locally owned businesses, working families,
and entrepreneurs. In the midst of this trend, there's
overwhelming evidence that corporations are earning monopoly
profits that aren't being reinvested in higher wages or our
economy, threatening the financial security of working people.
As Professor Ioana Marinescu will testify today, because
the majority of labor markets in the United States are highly
concentrated, employers have market power and are able to pay
lower wages than they would in the competitive market, while
many workers are unable to find new jobs because there are few
alternatives.
Simply put, in the absence of competition, employers have
virtually no incentive to pay fair wages to attain workers or
attract new talent, and workers are trapped in low-paying jobs.
While the effects of economic concentration have been
devastating for nearly all workers, it most severely harms
workers in vulnerable groups, such as women and people of color
who have less bargaining power against wage discrimination and
other forms of workplace inequality.
Today's hearing is also an opportunity to examine
anticompetitive conduct in labor markets such as the widespread
and growing use of noncompete and no-poach agreements.
According to a 2015 report by the Treasury Department, nearly
30 million working Americans at all levels of employment are
covered by noncompete clauses. As the Treasury Department
reported, these restraints, and I quote, prevent workers from
finding new employment, even after being fired without cause,
and are widespread even among workers who do not possess trade
secrets, such as workers in the fast-food industry.
Since then, more recent economic data indicates that
noncompetes have become even more prevalent across a variety of
occupations. For example, 30 percent of hairstylists, 42
percent of engineers, and 45 percent of physicians are covered
by noncompetes, according to a study by Professor Evan Starr.
There's also no shortage of examples of employers colluding at
the expense of workers through the use of no-poach clauses in
employment contracts.
Even though these restraints are criminally illegal, no-
poach clauses appear in everyday employment contracts,
including nearly 60 percent of agreements among major
franchises in the United States, driving down wages and
preventing workers from moving to better job opportunities.
Finally, today's hearing is also an opportunity to examine
the effects of occupational licensing requirements on everyday
workers. Today, nearly a third of jobs require licensure,
including many jobs that have little impact on public health or
consumer safety. Although there are many benefits associated
with establishing credentials for professions, particularly
those with important public health and safety considerations,
excessive licensing can create barriers to entering the
workplace, impose additional costs on workers, and result in
job losses.
Moreover, because these standards differ by state,
licensing barriers can disproportionately harm military
families which are 10 times more likely to relocate across
state lines than other working families.
As the late economist Alan Krueger explained, the most
common jobs for military spouses are nurses and teachers who
often have to get licensed in the new state when they move, pay
a licensing fee, and by the time they're permitted to work in
those state, they often move again. Even worse, many states
have begun weaponizing these requirements as leverage to
collect educational debt, suspending or even seizing these
licenses from firefighters, nurses, teachers, psychologists,
barbers, lawyers, real estate brokers, and others who fall
behind on student loan payments. According to a New York Times
investigation in 2017, there are at least 8,700 cases in which
licenses were taken away or put at risk of suspension in recent
years, although that tally almost certainly understates the
true number.
On the other hand, as Professor Frank Pasquale and Sandeep
Vaheesan have written, several occupations could benefit from
more training requirements, not less, and there are important
goals other than consumer welfare that licensing can promote,
such as stable employment in decentralized private power.
In closing, I look forward to hearing testimony from our
esteemed panel of witnesses on these matters and those
potential paths forward for fixing these problems. I firmly
believe that it's imperative that we explore every path for
creating economic opportunity for all working Americans. This
must be our top national priority.
With that, I now recognize the gentleman from Wisconsin,
the Ranking Member of the Subcommittee, for his opening
statement.
Mr. Sensenbrenner. Thank you, Mr. Chair.
Today we conduct oversight of a critical area of antitrust
concern: The intersection of labor and antitrust issues. As we
look at the relevant labor issues, it is important that we
first take a step back and look at the overall strength of the
labor scene in our economy.
I am happy to say that today the outlook for labor is very
good. Since election day 2016, America's economy has added 6.4
million jobs. Our unemployment rate is lower today than it has
been since May of 1969, over 50 years ago. That is historically
good news.
As we measured in the third quarter of 2019, nearly 75
percent of workers entering employment were coming, not moving
from among unemployed workers, but from entirely outside the
previous labor force. That is in no spark because the Trump
economy and the Administration for some time now the number of
unemployed people has been lower than the number of open jobs.
This is tremendous news for American workers.
Another notable statistic is the trend in unemployment
insurance claims. As of this September, those claims had
remained below 300,000 for 329 consecutive weeks. This is the
longest time since 1967, even though our labor force is twice
the size of those 52 years ago.
I want to also highlight the success of the
Administration's Pledge to American Workers initiative. This
initiative asks companies to commit to expand programs to
educate, train, and re-skill American workers. More than 300
companies have signed the pledge to date. These companies have
committed to creating over 14 million new jobs and training
opportunities over the next 5 years.
In short, a lot of good things are happening for America's
workers and the young people who are about ready to enter the
workforce. That being said, there are still issues for us to
look at and potentially tackle through legislation.
Each of the issues we will examine today fits that
description. These include occupational licensing, noncompete
and no-poach agreements, and labor monopsony issues. In one way
or another, each of these issues involves practices that can
inhibit the mobility of labor. It would be a good thing if
Members on both sides of the aisle could work together to find
appropriate and commonsense ways to help workers move freely
through the economy as they search for the work they most
prefer.
I hope that our witnesses today can help us work our way
through these important issues; and yield back the balance of
my time.
Mr. Cicilline. I thank the gentleman for yielding back.
We have two panels of witnesses today. It's now my pleasure
to introduce today's first panel.
Our first witness is Federal Trade Commissioner Noah
Phillips. Prior to his 2018 nomination and unanimous
confirmation to the FTC, he served as chief counsel to Senator
John Cornyn on the Senate Judiciary Committee from 2011 to
2018. In this role, he advised the Senator on issues involving
antitrust, constitutional law, consumer privacy, and
intellectual property. Commissioner Phillips is also an
experienced litigator, having worked at both Cravath, Swaine &
Moore, as well as Steptoe & Johnson, before his tenure with
Senator Cornyn. Commissioner Phillips received his A.B. from
Dartmouth College and his J.D. from Stanford Law School.
Our second witness, Doha Mekki, is counsel to the Assistant
Attorney General at the United States Department of Justice.
She joined the Antitrust Division in 2015 as a trial attorney
in the Defense, Industrials, and Aerospace Section, where she
litigated merger challenges in the rail, commercial vehicle,
and aviation industries. Previously, she was an antitrust
associate at Crowell & Moring, LLP. Ms. Mekki received her A.B.
from Duke University and her J.D. from the University of
Pennsylvania Law School.
I'd now like to recognize the gentlelady from Washington,
Ms. Jayapal, to introduce our third witness.
Ms. Jayapal. Thank you, Mr. Chair.
It's a particular privilege and honor to introduce a
constituent of mine and also I would say the Attorney General
of the state of Washington as a constituent of mine. We're so
proud of the work that the State Attorney General's Office is
doing.
So, our third witness today is Washington Assistant
Attorney General Rahul Rao from the State Office of the
Attorney General. Mr. Rao is a key member of the State Attorney
General's Antitrust Division, which has eliminated no-poach
clauses from over 150 corporate chains in about 160,000
locations in the United States. Mr. Rao clerked for the
Honorable Eric T. Washington on the D.C. Court of Appeals and
has worked at major firms, including McDermott Will & Emery and
Morgan, Lewis & Bockius.
Mr. Rao, we're very grateful to you for making the long
trip today to be with us.
Mr. Chair, I would just again say that our State Attorney
General's office has done tremendous work on civil rights, on
consumer protection, and, of course, on antitrust. So, we're
delighted to have a witness from there today.
Thank you.
Mr. Cicilline. Thank you very much.
We welcome all our distinguished witnesses on the first
panel and thank them for participating in today's hearing.
Now if you would please rise, we will begin by swearing you
in.
Please raise your right hand.
Do you swear or affirm under penalty of perjury that the
testimony you are about to give is true and correct to the best
of your knowledge, information, and belief, so help you God?
Thank you.
Let the record show the witnesses answered in the
affirmative.
Thank you. You may be seated.
Please know that each of your written statements will be
entered into the record in its entirety. Accordingly, I ask
that you summarize your testimony in 5 minutes. To help you
stay within that time, there's a timing light on your table.
When the light switches from green to yellow, you have 1 minute
to conclude your testimony. When the light turns red, it
signals your 5 minutes have expired.
I will begin with you, Commissioner Phillips. You are
recognized for 5 minutes.
TESTIMONY OF THE HONORABLE NOAH PHILLIPS
Mr. Phillips. Chair Cicilline, Ranking Member
Sensenbrenner, Members of the subcommittee, thank you for the
opportunity to appear before you today. Let me just begin by
noting it is something today to sit here with the portrait of
Mr. Conyers looking down.
My name is Noah Phillips, and I serve as a Federal Trade
Commissioner. I commend you for convening this hearing to
discuss policy issues that bear directly on a pressing problem
facing American workers.
America has a labor mobility problem. For the past several
decades, workers in America have been increasingly unlikely to
move new places and start new jobs, even in the same location.
That is not what we might expect since the costs of
transportation have declined and the costs of communication
reduced essentially to zero.
This decline in American labor mobility is bad for workers
and for the country as a whole. When Americans can move, they
can adjust to changing economic or life circumstances, the
prospect of opening a business, getting a better job, or moving
to help a family member. Labor mobility isn't just about
leaving the job you want tomorrow; it's about making the job
you have today better. When you can leave a job, you have
greater leverage to improve conditions, including to demand a
higher wage.
When workers cannot move, they have less leverage. So, it
is not surprising that scholars point to declining labor
mobility as a culprit in slow wage growth. One important
solution is competition. The more options workers have, the
more firms effectively compete for their labor. Policies that
favor labor mobility increase that competition. Policies that
inhibit mobility reduce it.
Labor mobility stokes commerce and innovation. It reduces
inequality, as people who are less well-off can move to areas
where the benefits of economic growth are more broadly shared.
People get bigger raises when they switch jobs than when they
stay put. As Yale Law School Professor David Schleicher
describes in his article ``Stuck!'', labor mobility allows the
Federal economic policies we choose, whatever they are, to work
better, as it brings our national economy together. This isn't
about labor versus capital, splitting the pie a different way.
It's about matching workers with employers, increasing the
productivity of businesses, empowering workers, and growing the
pie for everyone.
All of that is why I'm so eager to be here today to talk
about occupational licensing, no-poach agreements, and
noncompete agreements, the risks they pose, and how the FTC is
approaching them. I'll focus in my oral statement on
occupational licensing and noncompetes.
Licensing has a role to play in protecting health and
safety, but studies suggest that some 25 to 30 percent of the
U.S. workforce is now employed in occupations requiring a
license, often in areas where the need for licensing is not
apparent. Like the guilds of old, licensing regimes can impede
competition and keep people from pursuing the work they want.
Scholars estimate they reduced employment by nearly 3 million
jobs and cost consumers over $200 billion. That may be good for
incumbents and those who make money off licensing, but it's bad
for consumers. It is also bad for workers, especially the most
vulnerable, the marginal worker, the young person who wants to
start their career, the servicemember and their spouse.
Part of the problem is that states empower members of
professions to erect barriers around themselves. When the North
Carolina Board of Dental Examiners tried to ban teeth-whitening
services sold to drugstores, the FTC pushed back, and the
Supreme Court agreed.
Our competition advocacy continues today. For example, in
an amicus brief filed this month with DOJ in the SmileDirect
case, on noncompetes, Members of the House and Senate and State
legislatures are devoting increased attention and skepticism to
noncompete agreements. English common law was similarly
skeptical, deeming them great abuses by employers that
threatened workers with the loss of livelihood and society by
depriving it of a useful member. Today, the enforceability of
noncompetes is a matter of state law which varies widely.
Noncompetes can serve good purposes, incentivizing
investment in workers and protecting trade secrets, worthy
goals in our knowledge-based economy, but they also reduce
labor mobility. A recent Treasury Department study found
noncompetes associated with both lower wage growth and lower
initial wages. Research reveals a surprising prevalence of
noncompetes across the economy. We do not know if they have
been increasing in frequency, but they are certainly more
ubiquitous than we thought, and occur where the justifications
for them are not obvious. That concerns me.
The FTC is putting together a workshop on noncompetes. We
will consider both competition and consumer protection issues
and what Federal approach is warranted. Labor mobility is a
complex issue, and examining the inputs to it from both sides
has a better chance of contributing to a thoughtful response
that will improve a lot of American workers and the nation as a
whole.
Thank you.
[The statement of Mr. Phillips follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Cicilline. Thank you, Commissioner Phillips.
I now recognize Ms. Mekki for 5 minutes.
TESTIMONY OF DOHA MEKKI
Ms. Mekki. Thank you.
Chair Cicilline, Ranking Member Sensenbrenner, and
distinguished Members of the subcommittee, thank you for
holding this hearing on competition labor markets. I am honored
to offer the Department's perspective during this critical
moment for the American worker. It is also my privilege to
appear with my enforcement colleagues, Noah Phillips and Rahul
Rao.
Today's topic could not be more timely or important. Much
of the Division's recent work in this area is reflected in my
written testimony. Therefore, I'd like to use my time this
morning to make just a few observations about competition and
labor markets.
As the Subcommittee considers labor competition matters, I
hope you will always start with the principle that there's
something special about work. Today, we'll talk about the
aspects of work that are rooted in economic value and
bargaining power, but it's important to remember that labor is
also an expression of identity or values. For many Americans,
their work is essential to their dignity and purpose.
I know as much firsthand. I joined the Department in 2015,
as the Chair noted, and nothing I've done professionally has
been more worthwhile than investigating and litigating
anticompetitive mergers and conspiracies, including collusive
agreements and labor markets that harm workers. Representing
the American people has been the honor of my life.
For some, their first exposure to labor competition matters
was the issuance of the DOJ and FTC Antitrust Guidance to Human
Resource Professionals in 2016. Of course, our labor antitrust
enforcement didn't actually begin with the issuance of the
guidance. The Division has for years challenged anticompetitive
conduct in transactions in labor markets. Between 2010 and
2012, for example, the Division sued eight Silicon Valley firms
for entering into unlawful no-poach agreements. In 2016, the
Division challenged the proposed merger of Anthem and Cigna in
part based on the ability of the merged firm to suppress
reimbursement rates to healthcare providers. The Division has
also challenged unlawful wage fixing and information exchange.
Our experience in labor matters crystalized important
principles and helped set out the Division's priorities in this
area. Let me focus on four of them.
First, there is no faithful reading of the antitrust laws
that excludes competition for the American worker. Congress
understood corporate power broadly. The idea that it can harm
workers rests in the foundations of U.S. antitrust laws.
Senator John Sherman of Ohio, for whom our first antitrust law
was named, warned that monopoly power commands the price of
labor without fear of strikes for in its field it leaves no
competitors.
Today, there should be no serious doubt that the antitrust
laws seek to preserve the free market opportunities of buyers
and sellers, including workers who sell their employment
services. Antitrust enforcement and labor markets can go a long
way towards restoring the bargaining power of workers that was
lost due to anticompetitive restraints or monopsony power. Such
action is not only grounded in the Rule of law, but faithful to
Congress' intent.
Second, agreements that limit worker mobility and suppress
wages are found across economic sectors and geographies, and
they do not discriminate with respect to the skill, education,
or earnings of workers. Anticompetitive no-poach agreements are
classic restraints on worker mobility that distort the normal
bargaining and price-setting mechanisms that would otherwise
apply in the labor context. They sometimes prohibit cold
calling, soliciting, recruiting, or hiring of employees without
permission. When these agreements are naked, meaning when they
serve no purpose but to stifle competition, they are
considered, per se, illegal.
Beginning in October 2016, the Division announced that it
intends to criminally prosecute naked no-poach and wage-fixing
agreements because they eliminate competition in the same
irredeemable way as agreements to fix product prices or
allocate customers for territories, which the Division
prosecutes criminally.
After his confirmation in September 2017, AAG Delrahim
confirmed that under his leadership, the Division would remain
committed to the criminal prosecution of labor market
conspiracies, and for the first time in recent history, he
created a role in the front office for a lawyer to focus on
labor competition matters, including criminal enforcement
therein.
Inaction is not a price the public can afford. So, while
the time and resources required to build criminal cases is
intensive, corporate and individual liability is necessary to
punish criminal conspiracies and deter their occurrence.
Third, the Division continues to identify ways to detect
and challenge transactions that harm competition and labor
markets. In particular, the Division has been busy developing
potential screens, including document and information requests
and improved search and review technologies, to help agency
staff detect mergers that are likely to create or enhance
monopsony power.
Finally, continued study and research about competition
labor markets helps improve our enforcement. The Division
continues to think about ways to identify gaps in the legal and
economic literature and incentivize areas for continuing study.
Thank you again for the opportunity to testify. The
Department looks forward to working with the Subcommittee on
these important issues.
[The statement of Ms. Mekki follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Cicilline. Thank you very much.
I now recognize Mr. Rao for 5 minutes for his opening.
TESTIMONY OF RAHUL RAO
Mr. Rao. First, I would like to thank Congresswoman Jayapal
for the kind words and introduction.
Chair Cicilline, Ranking Member Sensenbrenner, and all
distinguished Members of the Subcommittee, thank you for the
opportunity to appear before you today to discuss important
issues on competition and labor markets. I'm here on behalf of
Attorney General Bob Ferguson, who appreciates the invitation
to appear and regrets that he could not attend in person.
I'm proud to represent the state of Washington, which,
while not alone among antitrust regulators in focusing on labor
markets, has been on the forefront of labor competition
enforcement. Without a doubt, the effort that has brought the
most attention to Washington's leadership on labor competition
is our initiative to end the nationwide use of no-poach
provisions in franchise agreements. By their terms, franchise
no-poach clauses prevent entities in a franchise system from
hiring or recruiting employees of another entity within that
same system.
Viewed through an antitrust lens, by limiting a potential
employer's ability to recruit or hire, this restriction
decreases competition for the labor of franchise employees, and
this decrease in competition for labor has the potential to
reduce opportunities and stagnate wages, benefits, and working
conditions.
As these clauses restrict the recruiting or hiring decision
of independent employers who would otherwise compete for the
very same workers, they are horizontal restrictions between
direct competitors for labor. Analogizing this to product
markets, this type of agreement is akin to price fixing or
market allocation, and like their product market analogs, we
believe that anticompetitive provisions between competing
employers are per se violations of antitrust law.
We launched our no-poach initiative in January 2018, and in
less than 2 years, through our negotiations, have secured
binding agreements from corporate chains representing over
160,000 locations throughout the United States to remove no-
poach provisions from franchise agreements nationwide. This
represents--this frees up competition for millions of workers
throughout the country.
Although no-poach provisions for all workers raise the same
antitrust concerns, low-wage workers, in particular, are
uniquely vulnerable and victimized by reduction in labor
competition. For low-wage workers, any marginal increase in
competition we create for their labor has the potential to
create direct, real, and meaningful benefits for those workers.
Whether that competition results in better shifts, better
benefits, better working conditions, or better wages, that
competition creates real value that flows directly to those who
need it most.
This is work we are very proud of. We have investigated
hundreds of companies, negotiated over 150 agreements to remove
no-poach clauses, sued one franchise system, and obtained a
favorable settlement 2 months before trial, and are nearing the
finish line of investigating the final 100 or so targets. As
Attorney General Ferguson has said, our goal is to end no-poach
practices, period.
On top of this initiative, we are also investigating
noncompete agreements that some employers impose on workers,
including low-wage or low-skilled work employees. And today, I
am happy to announce that my office right now is filing a
complaint and consent decree against a multilocation Washington
coffee shop that uses oppressive noncompetes against all its
employees, including its baristas. As set forth in our
complaint, this noncompete is an unfair method of competition.
Noncompetes used against employees such as baristas serve
no legitimate purpose. All they do is stifle competition for
labor. An employer that uses noncompetes to eliminate its
competitors' access to workers has less incentive to compete to
retain those employees. Importantly, these types of noncompetes
don't just harm workers; they also harm competing employers by
depriving them the opportunity to hire available, qualified
employees. When done simply to decrease competition for labor,
noncompetes present an unfair method of competition.
Finally, I want to reaffirm my office's commitment to
evaluating merger effects in merger reviews, including those
reviews we do alongside the Federal regulators. Because labor
is inherently localized, state attorneys general are uniquely
positioned to identify and evaluate mergers with companies who
may not necessarily compete or raise monopoly concerns in
outbound product markets but may still compete for employees
and raise monopsony concerns in a local inbound labor market.
We and 17 other state attorneys general set forth the need to
evaluate labor markets and merger reviews in public comments
submitted to the FTC earlier this year.
In closing, Washington state looks forward to working with
the subcommittee, the Department of Justice, the Federal Trade
Commission, and other state regulators as we all further
explore efforts to preserve free and open competition in labor
markets.
Mr. Chair, thank you for your time, and I look forward to
your questions.
[The statement of Mr. Rao follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Cicilline. Thank you, Mr. Rao.
I thank the witnesses for their opening statements.
We'll now proceed under the 5-minute Rule with questions. I
will begin by recognizing the gentleman from Georgia, Mr.
Johnson, for 5 minutes.
Mr. Johnson. Thank you, Chair Cicilline, for holding this
important hearing.
In all of our discussions about the impact of
anticompetitive behavior in the labor market, I think it's
important that we remember who we're protecting. This is about
making sure that workers have options, and when they do, it
helps both our economy and the worker. I'm particularly
concerned about the rampant use of noncompete clauses, not just
in Silicon Valley, but across the worker spectrum.
Three years ago, the sandwich chain Jimmy John's got their
noncompete clauses for their workers as part of a settlement in
a lawsuit, but the use of noncompete clauses between fast food
companies and their workers is rampant. These clauses are often
conditions of employment, and many employees don't know what
rights they're signing away.
On any given day, around 18 percent of the U.S. labor
market is governed by noncompete clauses, and they are
prevalent among workers who don't have access to trade secrets
that these clauses purportedly protect. So, I'm looking forward
to hearing your answers to Committee questions about this
important issue.
Mr. Rao, I'm concerned about low-income individuals being
most affected by noncompete clauses because they have fewer
options and less bargaining power. In your written testimony,
you note that noncompete clauses can undermine competition in
labor markets, even if they are never enforced. How does that
happen?
Mr. Rao. Thank you, Congressman. How that happens is
through what is best described as a chilling effect. Whether a
noncompete is enforced or not is actually of no moment in the
analysis. We may have no ability to fully quantify how many
potential employees never apply for a job because they feel
that they are subject to a noncompete, how many turn down a
solicitation, how many potential employers who may be aware of
an applicant's noncompete throws that application into the
waste bin.
So, the enforcement of the noncompete is a relevant fact
but is not dispositive of the negative impact that noncompetes
have on labor markets, especially for low-wage workers who
don't have the resources to hire lawyers or fight a lawsuit and
are just in a very unequal bargaining position with respect to
their current employer as well as a potential future employer.
Mr. Johnson. Thank you.
Ms. Mekki, in your written testimony, you state that labor
market competition issues are a high priority for the Antitrust
Division and that DOJ is devoting significant resources in this
area. How does the Antitrust Division evaluate labor effects in
merger enforcement?
Ms. Mekki. Thank you, Congressman. The horizontal merger
guidelines that the agency uses as a starting point for its
merger analysis expressly contemplate buy-side merger effects,
just as you might think of mergers potentially enhancing market
power and the sale of tangible goods and services. The
horizontal merger guidelines expressly lay out that the labor
market effect in a merger would--I'm sorry--the buy-side effect
in a merger would employ a similar framework for analysis as
sell-side effects.
We've done this in the past. In Anthem-Cigna, for example,
we demonstrated that, in certain geographies, the merged firm
would have the power to suppress reimbursement rates to
physicians. In Aetna-Prudential--that was a merger in 1999--
similarly, there was a buy-side harm alleged rooted in the
suppressed reimbursement rates paid to physicians.
So, the task for the Division really is to separate alleged
efficiencies from the creation or enhancement of monopsony
power, the latter of which is a problem.
Mr. Johnson. Exactly how does the Division evaluate labor
effects in merger enforcement?
Ms. Mekki. As I mentioned, it employs a similar analysis as
any other kind of merger analysis. It's certainly aided by
ample data.
Mr. Johnson. Well, what information does the Division
request when evaluating whether a transaction may harm workers?
Ms. Mekki. That's an excellent question. We are still
developing specifications to include in our second request and
civil investigative demands. As we think about labor market
competition, one of the most helpful pieces of information is
switching information. So, if you have a good sense of where a
buyer of a good or service is likely to turn in response to a
suppression in wages, then you have some sense of the degree of
concentration potential for effects in that market.
Mr. Johnson. Thank you.
Are there any examples of transactions that have been
reviewed by the Justice Department within the last 2 years that
have raised labor monopsony concerns?
Mr. Cicilline. The gentleman's time has expired, but the
witness may answer the question.
Ms. Mekki. Thank you, Chair.
Mr. Johnson. Thank you.
Ms. Mekki. Thank you for the question, Congressman. Sitting
here, I'm not aware of a merger in the last couple of years
that actually led to an enforcement action based on labor
market effects. Again, thinking through investigations, it was
probably considered during the investigative phases.
Mr. Johnson. Thank you.
I yield back.
Mr. Cicilline. Thank you. I thank the gentleman.
I now recognize the distinguished gentleman from Wisconsin,
the Ranking Member of the Subcommittee, Mr. Sensenbrenner, for
5 minutes.
Mr. Sensenbrenner. Thank you, Mr. Chair.
Before I came here, I spent 10 years in the Wisconsin
legislature, and during every session, there was always
legislation in various occupations to tighten licensing
requirements, always with a grandfather clause, and we refer to
those as fence-me-in legislation. As a matter of fact, I
remember one debate on the senate floor where the author of the
bill, who had a rather bizarre wig that was somewhat blue-gray,
where one of the opponents of the bill accused the author of
having a barber turning him prematurely blue. Now, that was
during speech or debate immunity. So, nothing happened to that,
aside from a few chuckles in the press.
That being said, licensing requirements are a state
prerogative. I think it would be very difficult to win an
antitrust case when the licensing requirements were tightened
as a way of preventing sideways mobility of people in a
licensed profession or people trying to get into a licensed
profession.
Now, the question I have, is there any way, Mr. Phillips,
that the FTC could announce some type of guidelines that could
be used in state legislatures when the regular fence-me-in
bills come up for debate and vote there?
Mr. Phillips. Ranking Member, thank you for the question.
I'm reminded of the song, ``Don't Fence Me In.''
Mr. Sensenbrenner. Yeah.
Mr. Phillips. The agency has been working for decades on
this critical question, and you're right to know that there's
often a sympathetic story when licensing requirements are
adopted. What we've seen over decades is a trend of them
increasing and often in areas where they don't make as much
sense.
We do two things that are really important. The first thing
is that we do competition advocacy. So, when invited, because
we want to respect federalism, we will give advice to state
legislatures and others formulating policy on the potential
competitive impacts of what they're doing. Occasionally, we go
to court. We are less often protecting, saying--protecting
against a particular limitation; more often focused on the
process.
So, in the North Carolina dental case that I described,
what the Supreme Court said is that when the state takes a
licensing regime and gives it to the power of a board of people
who participate in that industry, there are two things that are
required for antitrust law not to apply.
The first thing is that the state has to have a clear and
evinced policy of displacing competition. They have to have a
reason, and they have to be accountable for that reason not to
allow competition. Second, they need to actively supervise
what's going on. It can't just be the Members of that
profession fencing themselves in.
We brought that case in court and will continue to look for
opportunities to articulate that principle. A few weeks ago, we
joined with the Department of Justice in the SmileDirectClub
case to protect that principle in, I believe, the Eleventh
Circuit.
Mr. Sensenbrenner. Thank you very much.
Mr. Rao, I'm sure you got fence-me-in bills that are
introduced in the Washington legislature. Do the state of
Washington Attorney General's Office express concerns when the
effect of those bills are to prevent either horizontal
transfers or to prevent more people from coming and practicing
the licensed occupation?
Mr. Rao. Thank you, Ranking Member. To answer your
question, as a general matter, the attorney general's office
does comment and provide--you know, does weigh in on
prospective legislation. The Antitrust Division, whom I
represent today, I don't know specifically if it has done that.
We have other divisions within the attorney general's office
that do focus on occupational licensing. That is a bit outside
of the scope of my division's work. So, I am not fully prepared
to maybe answer your question as thoroughly as you would like.
I'm happy to provide supplemental comments afterwards from the
other divisions, if requested.
Mr. Sensenbrenner. Please do.
I yield back the balance of my time.
Mr. Cicilline. I thank the gentleman.
I now recognize the gentlelady from Washington, Ms.
Jayapal, for 5 minutes.
Ms. Jayapal. Thank you, Mr. Chair.
I have mentioned and you have heard today about the
excellent work that our Washington State Attorney General's
Office is doing, specifically to end no-poaching provisions in
franchise agreements. Now, the Washington AG's Office is also
looking at how major industries may be harming low-wage
workers' economic prospects in other ways as well, and also
carefully reviewing the impacts that mergers will have on
workers, a crucial reminder that enforcement agencies must
aggressively protect consumers, workers, and businesses against
monopsonies.
One of the things I have appreciated about our State AG's
office is that you don't wait for people to come to you. You
actually identify a problem, and in this case, no-poach
agreements, based on stories that were in the news, economic
analysis, and consumer complaints, and then you Act
aggressively, pursue an enforcement strategy that has resulted
in positive gains for millions of workers across the country.
Mr. Rao, what can other enforcement agencies learn from
your division's very successful example?
Mr. Rao. Well, I don't want to be necessarily looked that--
put in a position to tell other agencies how to behave or where
to get their cues. But at least what we have done in the
attorney general's office is we take inspiration where we can
find it. Our attorney general is very aggressive, in the best
way possible, with respect to protecting the rights of
Washingtonians, and he understands the use and power of the
office to do that.
We get our inspiration for our potential enforcement
actions from everywhere. With no-poach, it specifically came
from a New York Times article and underlying research by
Professors Orley Ashenfelter and Alan Krueger. We have also
received consumer complaints. We are plugged into the academia,
including with Members of the second panel that will be
appearing before you. We also receive consumer complaints, as
well as we are open to hearing complaints from competitors.
Competitors are on the front line of being harmed by
anticompetitive practices.
We listen to it all and we evaluate it all, and my advice
is, be aggressive and be open and look for opportunities to
help.
Ms. Jayapal. What's your relationship with some of the
Federal agencies like, the FTC and the Department of Justice?
How do you interact with them? Do you collaborate a lot with
those agencies? How does that work?
Mr. Rao. We actually, I believe--I'll let the other
agencies speak from their perspective. I believe we have a very
good working relationship with our federal enforcers, as well
as with other state regulatory antitrust enforcers.
Antitrust inherently is large. It crosses state borders. It
sometimes crosses national borders. Being able to collaborate
and share each other's resources is something that all the
regulators value about antitrust enforcement specifically.
Ms. Jayapal. Excellent.
Why did your office choose to investigate antitrust
violations in the context of labor markets? That's not always
what antitrust enforcers are doing. So, why did you make that
choice?
Mr. Rao. Well, one is, at least on the front end, a lot of
times, the antitrust community, to butcher a term that the
labor economists would use, we're trailing actors. Part of
labor is historically in over a hundred years-plus of antitrust
jurisprudence. Ms. Mekki is right, the labor has always been a
focus of antitrust. Maybe in the last few decades, it has been
forgotten to a certain extent or at least overlooked, and we
are seeing more research and more data coming up from labor
economists that's showing and evidencing that there's a real
problem out here.
Part of our focus is that there is a real problem. We know
that now, and we see this with growing wage disparity. We're
seeing the data that's pointing to our understanding of
monopsony markets is no longer the company town or the single-
factory town outside of Pittsburgh. In what it looks like a
robust market like Seattle, there are pockets of monopsony
power, and we know that now, and using our guide of being
aggressive enforcers, we are looking at labor markets.
Ms. Jayapal. So, let me ask you about labor market effects
of mergers, in particular, because your office pays close
attention to how working people might be harmed when large
corporations try to get even bigger. You submitted a letter to
the FTC, along with 18 other states, arguing that enforcement
agencies must take labor market impacts into account when
evaluating mergers.
Why is it so important for enforcement agencies at the
state and local--state and federal levels to pay attention to
the ways in which mergers might impact working people?
Mr. Rao. Well, labor--in general, with merger reviews, we
have always looked at outlook markets and products, but we've
also looked at input markets. Labor is an input, and it is a
critical input. It's one that directly affects people's lives
in that, when there's a monopoly power, the effect is increase
in prices for consumers. When there is monopsony power of a
dominant buyer, it decreases wages for workers. Because labor
is inherently localized, that effect may not be fully
appreciated when looking at a macrolevel, which is where the
State Attorneys General can come in, because we're on the
ground floor and we're on the front lines.
Ms. Jayapal. My time is almost--oh, actually, my time is
expired. I yield back, Mr. Chair.
Mr. Cicilline. I thank the gentlelady for yielding back. I
now recognize myself for 5 minutes.
Commissioner Phillips, several states, and you make
reference to this in your written testimony, including the
state of California, have banned the use of noncompete
agreements. What effects have these bans had on innovation and
investment and workers? Do you believe that this kind of state-
based activity has been procompetitive as a general matter?
Mr. Phillips. Thank you, Chair, for the question. What's
really interesting that we've seen is a variety of different
things that states have done. You're going to hear from some of
the academic experts who will speak to these effects and the
studies that they have done. So, you see in Washington State--
rather, excuse me--Oregon, looking at low-wage workers,
noncompetes with respect to low-wage workers. You see in Hawaii
tech workers being the focal point.
I think we've seen, from the data, some positive effects,
both with respect to wages and with respect to innovation, and
there is information from California. What I will say also is
that we do see, in the studies, some nuance, and we do know
that there are some benefits that noncompetes also provide.
Mr. Cicilline. Did you see any evidence, as a general
principle, that the banning of the noncompetes in California
has undermined the protection of a firm's trade secrets? That's
an argument that's often advanced.
Mr. Phillips. That is an argument, and there are data to
support that argument. The banning of noncompetes in California
goes back a very long way, I believe to the 19th century. I
think it is fair to say that California has been a hub of
innovation.
Mr. Cicilline. Thank you. That's my point. Thank you.
Ms. Mekki, is it the position of the Antitrust Division
that no-poach agreements are a per se violation of antitrust
laws?
Ms. Mekki. Thank you for the question, Chair. The Antitrust
Division has certainly made statements that naked no-poach
agreements are essentially just market allocations. It is a
species of market allocation, and there's no need to
distinguish between allocations of labor markets, like no-poach
agreements, and allocations of territories or customers, which,
for the last century, the Federal dockets are replete with
examples of enforcement there.
Mr. Cicilline. So, I take that as a yes. I'm not sure if a
no-poach agreement is different from a naked no-poach
agreement. I assume you mean a no-poach agreement that's really
a no-poach agreement is a per se violation of antitrust laws?
Ms. Mekki. In a matter of speaking, certainly. I would say
that the law does not treat all no-poach agreements equally.
For example--
Mr. Cicilline. I'm asking--I'm sorry to interrupt, but I'm
asking what the Department of Justice's position is.
Ms. Mekki. The Department of Justice's view is that naked
no-poach agreements are per se unlawful, and there may be
circumstances where an otherwise naked no-poach agreement might
be taken out of the per se category because it is, for example,
ancillary to the sale of a business.
Mr. Cicilline. So, in various briefs, the Antitrust
Division has argued that no-poach agreements entered by
franchisors should be analyzed under the far more permissive
Rule of reason standard. The idea that we would want to ever
protect the right of a powerful franchisor to block workers
from switching between franchises seems, to me, really
outrageous. I can't--I'm trying to understand why the
Department of Justice would engage in this kind of anti-worker
advocacy.
What's the explanation for carving out this exception for
no-poach agreements in franchising contracts, which is some of
the places where it happens most frequently with low-wage
workers? It seems like a really odd exception for a carveout.
Ms. Mekki. The Antitrust Division has filed a number of
briefs in no-poach cases. In two instances, it took the view
that no-poach agreements in the Seaman v. Duke University case
are per se unlawful, and in the In Re: Railway matter, which I
personally had the honor of arguing, that those agreements were
per se unlawful.
In the franchise context, it was the Department's view that
there's a spectrum for rules of analysis. For the Department,
on one end of the spectrum, naked agreements are routed towards
potential felony prosecution and resolution. On the other hand,
the Department also views certain economic literature as being
persuasive, that there are sometimes benefits when such
restraints were imposed in joint ventures or franchise
collaborations and, therefore, strict intra-brand competition.
As I understand the Department's brief, it also left open
the possibility that there can be cartelization of a labor
market, even in the franchise context when, for example, the
franchisees get together and it's at their behest that a no-
poach agreement is implemented.
Mr. Cicilline. That doesn't sound like a per se Rule then,
to me.
Ms. Mekki. It is not a per se rule, but it is also not an
endorsement or a belief that these agreements are useful,
procompetitive, lawful--
Mr. Cicilline. If the Department of Justice is not taking
the position that they're not, and challenging them in the fact
that, you say, it's not a statement that they're useful, by
implication, your position that you will do that sort of
analysis and provide that quite different standard is, in fact,
an invitation, isn't it?
Ms. Mekki. It is the Department's view that courts should
undertake a balancing. Even in the event that the restraints
were upheld in a low percentage of the time, it is the
Department's view that some balancing might be warranted in
cases like franchise context.
Mr. Cicilline. I thank you.
I now recognize the gentlelady from Georgia, Ms. McBath,
for 5 minutes.
Ms. McBath. Thank you, Mr. Chair.
Thank you so much to each and every one of you that are
here today. I apologize I was not here earlier, but I do have
your testimony. So, the questions that I'm asking are based
upon that testimony.
Thank you for sharing your expertise. I'm especially
pleased that we can come together as Republicans and Democrats
to focus on issues that truly are affecting millions of people
as they earn a living and provide for their families. Any
competitive labor practices affect so many sectors of our
economy.
A number of the experts that we're hearing from today
have--you've specifically noted how these issues have affected
nurses. My mother was a registered nurse. She taught nursing
for many years. So, my home State of Georgia has one of the
worst nursing shortages in the Nation. I'm concerned about how
these practices can hurt nurses, people who are thinking about
becoming nurses, and also our ability to make sure that people
can get the care that they need. I do remember spending--my
mother would oftentimes spend a lot of time tutoring a lot of
the young students, the young nurses, and so I understand the
gravity of being able to make sure that we have enough nurses
in the country to care for our patients.
I also come at this from the perspective of being a working
mom. I know what it's like to provide for my family, and I know
how important it is for people to have good options and
employment mobility to be able to do that. This is a
conversation that's been going on for some time in some
government and academic circles, but, for me, it's critical
that we think about it in terms of what it means for people who
are working hard to provide for their families.
Ms. Mekki, my question is for you. You also mentioned
nurses in your testimony. You describe two separate instances
where anticompetitive practices were used to target nurses
specifically. You mentioned that DOJ sued a trade group in
Arizona for fixing nurses' wages at a rate lower than
healthcare providers would have otherwise been paid. DOJ also
sued a group of hospitals in Utah that impermissibly shared
nonpublic information such that they could similarly pay nurses
less.
Notably, both of those cases you mentioned settled within a
matter of months, and both resulted in agreements by the
defendants to stop their anticompetitive practices. These cases
are especially concerning, given that artificially low nursing
wages could discourage people from going into nursing, when our
communities really, really need nurses.
What do these cases say about the importance of robust
government action to address these violations?
Ms. Mekki. Thank you so much for that excellent question,
Congresswoman. I have often marveled at the number of labor
market cases that seem to locate harm against workers myself.
You've noted two cases, and I would also note that at a labor
workshop we held last month, we invited in Dr. Elena Krieger
from Northwestern University, who published a wonderful paper
about the effect of hospital consolidation on the wages of
several groups, including nurses.
For me, this only underscores why it is so important that
the Department announced in 2016 that it would prosecute wage-
fixing agreements. To me, they're indistinguishable from price
fixing. In the future, if the Department were to find examples
of naked wage fixing, perhaps like the Arizona hospitals case,
that is the kind of thing that the Department has committed to
investigating criminally and potentially leading to a felony
conviction.
Ms. McBath. Thank you.
So, what can Congress do to reduce this kind of behavior
which is already illegal and harms both our workers and the
needs of our country? What can we do?
Ms. Mekki. Respectfully, I don't think I can comment on any
proposed legislation or specific actions that Congress can
take, but as the Department's representative and witness here
today, what I can say is that we are fully in a position to
exercise all of the lawful law enforcement authority that is
prescribed to the Antitrust Division. It is the AAG's
commitment that we will, in fact, exercise that authority,
because this is important, because we value the work of all
Americans. Truly, who is more honorable than people like nurses
and teachers, et cetera?
Ms. McBath. Thank you so much.
I yield back the balance of my time.
Mr. Cicilline. I thank the gentlewoman.
We're going to do a second round of questions, if we can
have the indulgence of the witnesses. I'll recognize the
gentleman from Georgia for 5 minutes.
Mr. Johnson. Thank you.
Commissioner Phillips, how have anticompetitive contracting
practices such as no-poach and noncompete agreements affected
labor mobility?
Mr. Phillips. Congressman, thank you for your question.
Just a caveat at the beginning. It's not clear that at in every
instance, let's say, a noncompete is anticompetitive. One of
the things that we're seeing with the prevalence of no-poach
agreements and the prevalence of noncompetes, about which
you're going to hear in the next round of testimony, is that a
lot of people are facing legal barriers and even barriers, as
Mr. Rao described, that aren't necessarily legal in states
where noncompetes are not necessarily enforced, to leaving
their job, to starting a new job, and with respect to
licensing, to starting a new business. All of these can be
thought of as friction for labor mobility.
Mr. Johnson. Friction?
Mr. Phillips. Yes, sir.
Mr. Johnson. What do you mean by that?
Mr. Phillips. What I mean is it's something that keeps a
person where they are maybe when they don't want to be there.
Another consideration they have to add to the mix when they
think about their options, when they approach their boss to
quit or to ask for a raise. That's what I mean by friction.
Mr. Johnson. I see. So, you're concerned that the
prevalence of noncompete agreements has harmed economic
opportunity for working Americans? Are you concerned?
Mr. Phillips. Yes. Not in every case, but I think we're
seeing them as more prevalent than we thought they were.
Mr. Johnson. In his written testimony, Professor Topel
suggests that restrictions on noncompete agreements would be,
quote, ``a dangerous law that would prohibit a widely used
business practice, a practice used even in situations where the
employer could not have substantive monopsony power,'' end
quote. What is your response to that quote?
Mr. Phillips. Well, I think there's some truth to that. I
think, as with all kinds of policy, what you want to look at
is, in terms of the thing you're looking at, how is it
operating in the market, right? When you talk about a blanket
ban, that isn't necessarily reflective of what the state of
play is.
One of the things we see in the research, for instance, is
that the effects for workers, where a noncompete is made
apparent to them, where it's negotiated, where there's
consideration for it, the effects are better. So maybe that's
an area you want to protect. We also see that there may be
different justifications, depending on whether someone is high
wage or low wage. Those are all kinds of nuances that Federal
policy ought to have in mind.
Mr. Johnson. So, you do see a Federal need--you do see a
need for federal legislation to address some of the ills of
noncompete agreements and the impact on workers?
Mr. Phillips. What I said in my testimony is that we're
convening a workshop to look at this question, and I think it's
a little too early to answer that particular question on the
need for federal legislation.
One of the things we've seen in the last few years in
states is a tremendous flowering of different kinds of
legislation. As I said before, Hawaii's looking at tech
workers. Oregon is looking at low-wage workers. That's
federalism at work, and I think we want to understand the
effects of what the states are doing before we arrive at a
federal solution.
Mr. Johnson. Thank you.
In connection with the workshop that you're planning, are
you already or will you be collecting data on the use of
noncompete clauses in low-wage employment scenarios?
Mr. Phillips. I'm not sure about the precise plans. My
expectation is that we'll hear from experts who have studied
that. There are also proposals to take other measures to
collect a lot more data, and that's something at which we're
going to look.
Mr. Johnson. Can you commit to compiling data that can be
used to analyze this issue moving forward?
Mr. Phillips. We can certainly compile information. I can't
commit at this point to like a 6(b) study, for instance, but
we're absolutely undertaking this effort in order to get the
right information to determine how best to proceed.
Mr. Johnson. Thank you.
In his written testimony, Professor Topel also argues that
noncompetes allow, quote, ``the employer to capture some of the
returns on its investments in identifying and recruiting and
training talented workers,'' end quote. Even if true, wouldn't
this rationale also justify wage fixing and other collusive
behavior by employers that is criminally illegal?
Mr. Phillips. I hope nothing would justify wage fixing or
any criminal behavior. My understanding of the evidence is that
noncompetes can function to help support worker training, and
worker training is an important thing, and that's part of the
nuance that I think we all need to take into account.
Mr. Johnson. Well, do you believe that there are less
restrictive ways to recoup the cost of hiring new workers?
Mr. Phillips. There may be, depending on the--on the
context. Noncompetes are pretty ubiquitous in the economy, and
they're not always bad.
Mr. Johnson. Thank you.
Mr. Cicilline. Thank you. The gentleman yields back.
I now recognize myself for 5 minutes.
I just want to continue, Ms. Mekki. You made reference in
your opening statement to the criminal prosecutions, and I
realize this is not you, this is Mr. Delrahim's. So, I
recognize these decisions aren't being made by you, but you're
here, so I want to ask you this question. Because you're quite
right, Mr. Delrahim has made quite a bit of this commitment to
criminally prosecute for these no-poach agreements. In fact--
and I'm quoting him--he said, ``in the coming couple of months,
you will see announcements, and to be honest with you, I've
been shocked about how many of these there are, but they're
real.''
There's been this sort of suggestion that the Department of
Justice was going to take this no-poach agreement enforcement
so seriously that it would begin to criminally prosecute. In
this article as of October 3, they write, but for all of its
talk of putting executives behind bars, the agency hasn't
brought a single criminal no-poach case in the nearly 3 years
since this guidance was announced.
So, my first question is, is that true that there hasn't
been a single criminal prosecution brought for a no-poach case
in the last 3 years?
Ms. Mekki. There have been no public filings with respect
to criminal no-poach cases. As AAG Delrahim has confirmed,
there are a number of active criminal investigations.
Mr. Cicilline. Okay. I will just say, for those of us who
consider these no-poach agreements to be a substantial
violation of law but also a very powerful force in keeping
workers in place and stagnating their wages, the promise to be
rigorous in their enforcement and not in 3 years have brought a
single criminal case, frankly, rings hollow.
I hope you will bring that message back to Mr. Delrahim,
that those of us who think this is key to ensuring that labor
markets work think that this is a valuable tool. Alhough, he's
spoken very forcefully about it, it doesn't seem to be playing
out in the way that he's suggested. I know investigations take
time, but 3 years is a long time to not be able to bring a
single case.
I just want to finally say that with respect to the
franchising position that the Department of Justice has argued,
there have been a number of filings in which the right of
franchises to enter no-poach agreements have been recognized,
and particularly one of the cases involved Washington State.
So, I'd like to ask Mr. Rao, tell us a little bit about
that pleading.
Then I'm going to ask Ms. Mekki whether this was a useful
expenditure of resources, the limited resources at the DOJ,
because it seems as if your attorney general had concluded that
no-poach agreements were a per se violation.
Mr. Rao. That's right. Just for quick background, we're
talking about three class actions that were filed in the
Eastern District of Washington involving private parties where
during the motion to dismiss phase the Department of Justice
filed statements of interest in all three cases. They were
consolidated for argument purposes.
Our office, the Washington Attorney General, filed an
amicus brief articulating the state's position that--Department
of Justice position, I will let Ms. Mekki articulate better
what DOJ's position is, but generally was that these were not
per se violations and were subject to the rule of reason. The
state of Washington filed amicus briefs that took the opposite
position and also articulated that state claims were made.
Part of the rational here, at least for the state's
position, is that in DOJ's briefing they made the point that
agreements that would otherwise be per se violations of
antitrust law may escape per se liability if they're ancillary
to a broader agreement. It's called the Ancillary Restraint
Doctrine. The Ancillary Restraint Doctrine, however, is
triggered only when that provision is reasonably necessary to
further effectuate the broader purpose of the agreement.
We in Washington, in the antitrust division, are on the
forefront of franchise no-poach. We have, at that time, it was
a little less than a 100, but we're over 150 companies that
have voluntarily removed these provisions on their own accord.
We have heard first-hand from parties that have removed these
provisions prior to our investigation. We have heard from the
parties that some of these provisions were never enforced, that
they didn't know they exist.
All in all, the facts that we have understood is that these
provisions were--they're just not necessary. I describe them as
vestigial organs. The franchises don't necessarily know how
they got in the agreement to begin with. They're like an
appendix. You don't know what it is, you don't know what it
does, and you're happy to get rid of it when it causes a
problem.
That does not trigger the Ancillary Restraint Doctrine if
it's not necessary and, therefore, per se liability would still
attach.
Mr. Cicilline. Am I correct, Mr. Rao, that as a result of
the enforcement actions by the Washington Attorney General,
there are already over 60 corporate chains that have dropped
their no-poach clauses from their franchise agreements?
Mr. Rao. Point of correction, Mr. Chair, it's over 150
corporate chains.
Mr. Cicilline. One-hundred and fifty, okay. So, it seemed
like that enforcement action, this notion of its necessity for
business purposes has been completely refuted by subsequent
events.
Mr. Rao. Just by the plain facts that surround the
enforcement would more than suggest that these provisions are
not reasonably necessary.
Mr. Cicilline. Thank you.
I see my time has expired. I recognize the gentlelady from
Georgia for 5 minutes, Ms. McBath.
Ms. McBath. Thank you, Mr. Chair.
Mr. Phillips, you spoke about how state licensing can be
restrictive anti-competitive practice. Georgia is now part of
an agreement with 32 other states that allow nurses to maintain
their licenses across state lines. What are the effects of
agreements like these that allow workers to work across state
lines?
Mr. Phillips. Congresswoman, thank you for that question.
I think the effects are really good. These kinds of
agreements, like the one into which Georgia has entered, allow
for precisely the thing that I'm asking the Committee and
policymakers generally to focus on, and that is labor mobility.
You're licensed in Georgia, you can go work elsewhere.
Let me give you an example. I'm going to borrow from
psychology. A psychologist has a patient that they treat
regularly, but the patient goes and travels. When the patient's
on travel, they want to have that regular appointment, they
want to get that care. Because the patient is travelling, that
could be the unlicensed practice of psychology. The same thing
applies to nursing.
These kind of interstate compacts allow for the ability of
care providers to provide that care more generally. They allow
for innovation in telemedicine. They also empower the worker.
If the worker needs to move to care for a family member or go
with a spouse who got a different job or just needs to get out
of the state, they don't also have to go through these
licensing burdens. You talked about working moms. They can
focus on caring for their children and doing their work.
Ms. McBath. Thank you for that.
I have often spoken to healthcare providers, nurses, who
have said that, I'm licensed in a particular state, but I'm not
licensed, here, to work here. So, on behalf of, you know, the
mindset of my mother, who was a registered nurse, who when we
moved from Illinois to Washington, DC, to Columbia, Maryland,
she then, again, had to take the licensing testing all over
again. I remember her studying, and I remember her being
stressed that if she didn't pass the licensing here that she
wouldn't be able to practice as a nurse.
So, thank you for that. I appreciate that.
I give back the balance of my time.
Mr. Cicilline. I thank the gentlelady for yielding.
I thank the witnesses. In keeping with our committee's
practices, the witnesses are at this point excused. We thank
you very much for coming here today to share your thoughts
about the state of competition in labor markets. This was a
very informative hearing, and it will help us as we consider
these issues moving forward and we really appreciate it.
Members of the second panel please are invited now to take
your seats once our staff has made the administrative
arrangements. That is, put the new name cards up.
Mr. Cicilline. Welcome. I will now introduce our second
panel of witnesses.
The first witness on our second panel is Professor Sanjukta
Paul, Assistant Professor of Law at Wayne State University and
a fellow of the Thurman Arnold Project at Yale University.
Professor Paul's scholarship and teaching focus on the
intersection of antitrust law and labor regulation.
Prior to joining the faculty of Wayne State University,
Professor Paul was a public interest attorney in Los Angeles
focused on labor and civil rights. She is widely published,
with her work having appeared in the UCLA Law Review and the
Berkeley Journal of Employment and Labor Law. Her paper, ``The
Enduring Ambiguities of Antitrust Liability for Worker
Collective Action,'' was granted the Jerry S. Cohen Memorial
Fund Award for Best Antitrust Scholarship of 2016.
Professor Paul received her B.A. from the University of
Iowa and her J.D. from Yale Law School.
Our second witness is Professor Ioana Marinescu. Professor
Marinescu currently serves as Assistant Professor at the School
of Social Policy and Practice at the University of
Pennsylvania.
Before going to Philadelphia, Professor Marinescu was an
Assistant Professor at the Harris School of Public Policy at
the University of Chicago as well as a postdoctoral researcher
in economics at Harvard University. She's a Faculty Research
Fellow in labor studies at the National Bureau of Economic
Research as well as a Research Fellow at the Institute of Labor
Economics.
Professor Marinescu received her master's degree from the
Pantheon-Sorbonne and her Ph.D. from the London School of
Economics.
Our third witness on the panel is Evan Starr, Assistant
Professor of Management Organization at the Robert Smith School
of Business and Management at the University of Maryland.
Professor Starr's research focuses on employer-employee
contracting practices, particularly the impacts of post-
employment restrictive covenants. His work was used
predominantly by the White House and Department of Treasury
when they compiled their report on noncompete agreements in
2016. He also worked to coordinate a 2016 White House convening
on noncompete agreements.
Prior to joining the faculty at the University of Maryland,
Professor Starr taught economics at the University of Illinois.
Professor Starr received his B.A. from Denison University and
his Ph.D. from the University of Michigan.
Our fourth witness is Rick Masters, Special Counsel for
Interstate Compacts at the Council of State Governments'
National Center for Interstate Compacts.
A national expert on interstate compacts, Mr. Masters is
the principal draftsman of the Interstate Compact for Adult
Offender Supervision enacted by all 50 states, the Interstate
Compact for Juveniles enacted by 46 states, and the Interstate
Compact in Educational Opportunity for Military Children
enacted by 31 states. He has testified numerous times in front
of various state legislative committees on these compacts.
Mr. Masters has also worked with the National Highway
Traffic Safety Administration, Department of Defense, and the
Department of Justice on various interstate compact projects.
Mr. Masters received his B.A. from Asbury College and his
J.D. from the Louis D. Brandeis School of Law at the University
of Louisville.
Our fifth witness is Kate Bahn, the Director of Labor
Market Policy at the Washington Center for equitable growth.
Dr. Bahn's research focuses on gender, race, and ethnicity in
the labor market, care work, and monopsonistic labor markets.
Before joining the Washington Center, Dr. Bahn was an
economist at the Center for American Progress. She also serves
as the Executive Vice President and Secretary for the
International Association for Feminist Economics. She's been
published in a wide range of journals and periodicals,
including The Guardian, the Nation, Salon, and Newsweek.
Dr. Bahn received her B.A. from Hampshire College and her
Ph.D. from the New School for Social Research.
Our last witness, Robert Topel, is joining us today via
video conference, to our left, from the Booth School of
Business at the University of Chicago where he's served as
professor of economics since 1979. His research revolves around
labor economics, industrial organization and antitrust,
economic growth, and public policy.
He's the author of several books on labor and health
economics and has been published by multiple academic journals,
including the American Economic Review and the Journal of
Political Economy. Professor Topel also serves as a Research
Associate at the National Bureau of Economic Research and has
held visiting positions at the World Bank, the RAND
Corporation, and the Board of Governors at the Federal Reserve.
Professor Topel received his B.A. from the University of
California at Santa Barbara and his Ph.D. from the University
of California at Los Angeles.
Welcome all our distinguished witnesses on our second panel
and thank you for participating in today's hearing.
Now, if you would please rise, I will begin by swearing you
in. Please raise your right hand.
Do you swear or affirm under penalty of perjury that the
testimony you are about to give is true and correct to the best
of your knowledge, information, and belief, so help you God?
Thank you.
Let the record show the witnesses answered in the
affirmative.
Thank you. You may be seated.
I think you heard about the lights, because you were all in
the room, so I won't repeat that. I'll ask now that you
summarize your testimony in 5 minutes.
We'll begin with Professor Paul. There's a microphone
button right there.
TESTIMONY OF SANJUKTA PAUL
Ms. Paul. Thank you. Chair Cicilline, Ranking Member
Sensenbrenner, and Members of the subcommittee, thank you so
much for holding this important hearing on the place of labor
markets and workers in antitrust law. I'm honored to offer my
perspective at a moment that is critical both for antitrust law
and for workers.
In addition to the important issues that are being
highlighted in the rest of this hearing, noncompete and no-
poach agreements, occupational licensing, as well as emerging
empirical research concerning the power that employers wield
over workers in labor markets, I also want to draw attention to
numerous other implications that antitrust law has for workers
and labor markets.
First, antitrust law currently functions as an obstacle to
the collective action of workers who find themselves beyond the
bounds of labor regulation.
Second, and relatedly, the lax regulation of vertical
restraints has contributed to what's been called the fissured
workplace, which includes, in fact, the proliferation of work
beyond the bounds of employment.
Third, harms to workers across areas of antitrust,
including but not limited to employer cartelization and
corporate mergers, are insufficiently scrutinized under the
consumer welfare standard as currently applied.
In my remaining time, I'll focus on framing the overall
issue of antitrust law's relationship to workers by summarizing
the legislative history on this topic and will describe the
antitrust obstacles to workers' collective action in the
fissured workplace.
To start with the legislative history, the Sherman Act, of
course, is the statutory foundation of antitrust on which
subsequent statutes have built. The statute was a response to a
broad social movement focused on a particular phenomenon: The
rise of corporate power, especially as manifested in the legal
form of the business trust.
The farmer-labor coalition that pushed for federal
antitrust legislation was specifically concerned with the
concentration of control over the economy in fewer and fewer
hands and with the accompanying disempowerment of many American
working people who had previously enjoyed some level of
autonomy and control over their economic lives.
Legislators, like the political coalition to which they
were responding, were concerned mainly with dispersing control
over the economy rather than with the lowest consumer prices or
even with competition for competition's sake. Legislators spoke
again and again about the harms caused by the powerful new
business trusts which were the precursors to the industrial
megacorporations that would emerge over the next decade or two.
At one point, Senator Sherman read the following statement
in the record, and I want to read it now: ``The trusts and
combinations are great wrongs to the people. They operate with
a double-edged sword. They increase beyond reason the cost of
the necessities of life and business and they decrease the cost
of raw material, the farm products of the country. They
regulate prices at their will, depress the price of what they
buy, and increase the price of what they sell. They aggregate
to themselves great, enormous wealth by extortion, which makes
the people poor. Then they make this extorted wealth the means
of further extortion from their unfortunate victims, the people
of the United States . . . till they are fast producing that
condition in our people in which the great mass of them are the
servitors of those who have this aggregated wealth at their
command.''
I just want to remind us that this is the statutory purpose
of antitrust law, the affirmative purpose.
Furthermore, from a review of the legislative record, it's
also evident that legislators manifestly did not intend to
target collective action, joint price setting, or collective
bargaining among workers, small producers, or entrepreneurs,
the very people the statute was intended to help, with or
without any expressed labor exemption, as is further set out in
my written testimony.
The courts nevertheless interpreted the statute in just the
way Congress had thought to avoid, turning it into a weapon
against working people's collective action during an era when
such action was one of the few limited checks upon sweatshop
labor, child labor, and the general dispensability of workers'
lives.
It was not until the New Deal era that further legislation
and subsequent court decisions finally, although only
partially, reinstated legislators' original intent.
Fast forwarding to today's labor market, this original
worker welfare, if you will, legislative purpose has been
inverted. In the so-called gig economy, dominant firms can fix
prices across thousands of supposedly independent businesses
while antitrust law functions to prevent individual workers and
entrepreneurs from engaging in collective bargaining to improve
their pay and working conditions.
The fissured workplace refers to business arrangements in
which firms have vertically disintegrated, but in which lead
firms are nevertheless able to maintain control over smaller
firms and workers in their orbits while largely disclaiming
responsibility for what happens outside their formal firm
boundaries. This is true when Uber, for example, sets the
prices charged by the very drivers the firm insists are
independent businesses, and it is also true when franchisers
control their franchisees' business decisions.
Antitrust law's lax attitude toward vertical restraints
since the 1970s has allowed this sort of control to
proliferate. Indeed, the ride share platform's price setting as
to ride services, services they do not sell, tests the bounds
even of existing antitrust law.
Importantly, the economic arguments for relaxing the law of
vertical restraints have generally been premised upon largely
hypothetical benefits to consumers without considering the
effects upon workers, franchisees, or other smaller actors in
the orbits of dominant firms.
The Department of Justice Antitrust Division engaged in
this style of reasoning recently when it filed a brief in favor
of franchisors' impending cases involving no-poach agreements,
which you were just discussing, pointing to speculative
consumer benefits as legitimate justifications for restraints
upon competition in labor markets.
Mr. Cicilline. Professor Paul if you could just summarize.
Your time has expired. We're going to have lots of time for
questions.
Ms. Paul. Okay. Well, I will just summarize by saying that
given the original purposes of antitrust law, it should do more
to restrain the control exerted by powerful firms over workers
and small players and at the same time it should not impose
obstacles upon workers' attempts to engage in collective action
to balance the bargaining power of more powerful contracting
parties.
[The statement of Ms. Paul follows:]
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Mr. Cicilline. Thank you.
Dr. Marinescu is recognized for 5 minutes.
TESTIMONY OF IOANA MARINESCU
Ms. Marinescu. Chair Cicilline, Ranking Member
Sensenbrenner, and Members of the subcommittee, thank you so
much for inviting me to testify today. My name is Ioana
Marinescu. I'm a professor of economics at the University of
Pennsylvania.
I am particularly glad to be here today because since 2017
I have coauthored nine papers, all on the topics of competition
in the labor market, both in economics and law scholarship. I
have recently been invited to speak about my research in the
federal antitrust enforcement unit, that is the Federal Trade
Commission, as well as the Department of Justice Antitrust
Division.
So, in my testimony I want to make four points. The first
is that employers can suppress wages due to limited competition
in the labor market. The second is that the majority of U.S.
labor markets are highly concentrated. The third is that this
kind of concentration, higher concentration, tends to lower
wages. The fourth is that antitrust enforcement in labor
markets should be strengthened, and this fourth point is based
on the current evidence that I'm going to be describing today,
together with existing antitrust law principles.
So, to my first point, employers can suppress wages due to
limited competition in the labor market. Think about an
example. Let's think about a legal secretary in Columbus, Ohio.
She's the mother of three small kids, like me, and her employer
tells her, you know what, this year we won't give you a pay
raise, which will make it harder for her to afford the
necessities of life.
Will she quit? Well, it depends. It depends on what other
jobs are available close to her home. With small kids she
cannot afford to move or commute far away to go to another job.
There might be other jobs, other administrative assistant jobs,
but not a legal secretary job, and those jobs may pay less and
do not make full use of her skills.
So simply put, workers cannot easily find alternative jobs,
and so this allows employers to suppress wages. Particularly,
our research shows that workers produce as much as 17 percent
more than what they are paid.
Furthermore, we use an accepted antitrust test, the SSNIP
test, which you apply to the labor market, and we find that
essentially all labor markets defined by an occupation and a
commuting zone, like in my example, a legal secretary in the
Columbus, Ohio, commuting zone, all these kinds of markets are
valid antitrust markets that can be used to analyze competition
in the labor market.
My second point is that the majority, or 60 percent more
precisely, of U.S. labor markets are highly concentrated. These
are defined as an occupation by a commuting zone. So, what does
that mean, highly concentrated? They have in the Herfindahl-
Hirschman Index, HHI, above the 2,500 high concentration
threshold that has been established by the horizontal mergers'
guidelines. Concretely, what turns out to be the case is that
the average market in the U.S. has only barely above two
effective employers competing at any point of time to hire
workers.
Now, it is true that larger cities are generally much less
concentrated. So, if our legal secretary in Columbus, Ohio,
were instead looking for jobs here in Washington, DC, she would
face a less concentrated labor market, more competition for her
labor.
Third, my third point, is that higher labor market
concentration tends to lower wages. This is true in general,
but I want to focus on the example of hospitals.
There's been a recent study of hospital mergers showing
that they decrease wages by increasing labor market
competition.
Specifically, the wage growth of specialized personnel,
like pharmacy workers, has decreased by 25 percent in the
aftermath of wages that have significantly increased labor
market concentration.
So given that workers in concentrated labor markets are
underpaid, there is room to increase the minimum wage, for
example, without reducing employment, as our recent work shows.
My fourth point, and to conclude, is that antitrust
enforcement in labor markets should be strengthened. This is
based on the current evidence together with existing legal
principles.
There is currently a big, a large antitrust enforcement gap
that you guys have just been talking about in that there is
almost no enforcement of the antitrust law in labor markets, a
point we demonstrate in my paper with Eric Posner. Yet it is
straightforward to take into account the anti-competitive
effects on the labor market in mergers, in particular, as shown
in my paper with Herb Hovenkamp.
So, to conclude, legislative action could facilitate
antitrust enforcement and more generally antitrust litigation
in the labor market by codifying and clarifying the antitrust
law. I invite you to consider our legislation proposal that
Eric Posner and I wrote.
So, I thank you for your attention, and I really look
forward to your questions.
[The statement of Ms. Marinescu follows:]
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Mr. Cicilline. Thank you, Doctor.
I now recognize Dr. Starr for 5 minutes.
TESTIMONY OF EVAN STARR
Mr. Starr. Chair Cicilline and Ranking Member Sensenbrenner
and Members of the committee, thank you for the opportunity to
testify on the important topic of competition in labor markets.
My name is Evan Starr, and I'm an assistant professor at the
University of Maryland's Robert H. Smith School of Business.
I'd like to focus my testimony on an employment practice
which by definition restrains trade in the labor market, the
use of covenants not to compete, which prohibit departing
workers from joining or leaving competing firms.
If you're unfamiliar with these so-called noncompete
agreements, please allow me to read the text of one signed by a
temporarily employed Amazon packer making $12 an hour in 2015:
``During employment and for 18 months after the separation
date, employee will not engage in or support the development,
manufacture, marketing, or sale of any product or service that
competes or is intended to compete with any product or service
sold, offered, or otherwise provided by Amazon that employee
worked on or supported or about which employee obtained or
received confidential information.''
The reason noncompetes like this are important for labor
market competition is that they may prevent workers from
working where they want and earning what they could in a
competitive labor market. In my research, I've sought to
understand how common noncompetes are, how they influence
workers and firms, and what sort of effects banning them has on
economic activity.
In my testimony today I'd like to make the following
points. First, noncompetes are everywhere. Doggy daycare
workers, unpaid interns, volunteer coaches, janitors, yoga
instructors, and hair stylists are just some of the jobs in
which noncompetes have been found.
In a study of 11,500 U.S. workers, my colleagues JJ
Prescott, Norman Bishara, and I estimate that approximately one
in five private sector workers were bound by noncompetes and
that approximately 40 percent of labor force participants had
ever signed one. We also find that while noncompetes are more
common among highly paid workers, hourly paid workers actually
make up the majority of those bound by noncompetes because they
represent such a large part of the labor force.
Second, noncompetes are negotiated over just 10 percent of
the time and are regularly asked of workers when they have
limited bargaining power, such as on the first day of the job.
Third, despite reasonable arguments that noncompetes might
benefit workers and firms by spurring investment, most research
suggests that the use and enforceability of noncompetes reduces
wages, entrepreneurship, and job-to-job mobility, making it
harder for firms to hire and creating negative spillovers for
others in the market.
For example, in a study of Oregon's 2008 ban on noncompetes
for low-wage workers, my colleague Mike Lipsitz and I find that
hourly worker wages rose to 6 percent 5 years after the ban
while job-to-job mobility rose 12 to 18 percent.
In another study, my coauthors and I examined a ban on
noncompetes that Hawaii implemented in 2015 for only high-tech
workers, an occupation in which the potential benefits of
investment are much more salient. Yet, similar to the low-wage
setting, we find that Hawaii's tech noncompete ban raised
quarterly earnings for new hires by 4 percent and job mobility
by 11 percent. These results suggest that noncompetes were
indeed preventing workers from working where they wanted and
earning what they could in a competitive market.
Fourth, and importantly, even in states that do not enforce
them, noncompetes still cover 19 percent of the workforce.
Moreover, these unenforceable noncompetes also appear to chill
employee mobility.
Fifth, noncompetes are blunt tools to protect legitimate
business interests because they explicitly limit employment
options for departing workers. However, other tools can do
similar jobs for the firm without constraining worker options
so severely.
For example, nondisclosure agreements and trade secret laws
can protect trade secrets, while nonsolicitation agreements can
protect clients, yet neither of these provisions limit job
options for departing workers.
The efficacy of noncompetes should be judged based on the
relative value of these alternatives.
Sixth, despite recent advances, data on the actual use of
noncompetes in similar provisions remains scarce. With a
mandate from Congress, the FTC would be well-suited to gather
and analyze employment contracts under section 6(b) of the FTC
Act.
Finally, I'd just like to note that this is not a classic
firm-versus-worker issue because firms are on both sides of the
equation. Firms certainly would not like to lose their
employees to competitors, but firms also engage in hiring as
well.
Second, I'd like to note that it's also not a conservative-
versus-liberal issue, as we've seen several recent bills
proposed by both Republicans and Democrats, which has been
uplifting.
Thank you.
[The statement of Mr. Starr follows:]
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Mr. Cicilline. That it was uplifting, we don't hear that
often enough.
Mr. Masters, you're recognized for 5 minutes.
TESTIMONY OF RICHARD L. ``RICK'' MASTERS
Mr. Masters. Yes. Chair Cicilline and Ranking Member
Sensenbrenner, I'm pleased and honored to testify before you
today on ways in which interstate compacts can provide for
multi-state licensure for occupations, including health
professionals.
In my work with the Council of State Governments as the
Special Counsel for Interstate Compacts, I have written all the
existing health occupational licensure compacts for medicine,
nursing, physical therapy, EMT, psychologists, and more
recently, speech pathologists.
Currently, there is more activity among state legislatures
with regard to occupational licensure compacts than any other
category of interstate compacts with which our organization is
working. Currently, 34 legislatures have adopted the nurse
licensure compact; 31 legislatures, the medical licensure
compact; half the states, 25, have adopted the physical therapy
licensure compact; 17 states have adopted the EMT licensure
compact; and 12 states have adopted the psychology licensure
compact.
All these interstate agreements provide for license
portability based on the mutual recognition model, which is
exemplified by the driver license compact, where you only need
to get one license in the state where you reside and then you
can practice in all the other member states based on a common
set of criteria that are set forward in the compact.
I've also appeared before the FTC's Liberty Task Force,
which studied the various issues related to license
portability, and in our 2018 report, called ``Options to
Enhance Occupational License Portability,'' they recognized the
interstate compacts that used this mutual recognition model as
a tool to improve licensure portability nationwide.
FTC staff also encouraged stakeholders, licensees,
professional organizations, and licensing boards, as well as
state legislators, to consider the likely competitive effects
of options to improve license portability across state lines.
They also found that reducing barriers for multi-state
practice and considering the mutual recognition model will
allow States to harmonize their standards using the least
restrictive standards that can gain the support of the state
legislatures.
Moreover, said the FTC, by unhanding the ability of
licensees and licensing boards regarding the provision of
services in multiple states and to allow them to become quickly
licensed upon relocation, license portability initiatives can
benefit consumers by increasing competition, choice, and access
to services, especially where providers are in short supply.
We have also been involved in discussions with the
Department of Defense, and there is currently a provision in
the National Defense Authorization Act which would provide
funding for states that are interested in developing increased
license portability for spouses of military Members involved in
occupations such as cosmetology, teaching, mental health
counseling, dental hygiene, and occupational therapy.
Even as we speak, just a few blocks from here, I'm involved
with some discussions with occupational therapists over at the
Hall of the States with the CSG headquarters.
So, we certainly believe that these issues are served and
competition is promoted and antitrust is ameliorated through
interstate compacts, and by creating these governing structures
to collectively exercise power the states are creating fair and
uniform and efficient ways of addressing occupational
licensure, which ameliorates these antitrust concerns,
continues to allow states to provide reasonable standards to
protect public safety, while facilitating multi-state
employment opportunities for licensed professionals.
We believe interstate compacts provide a shared power
approach that preserves state sovereignty in areas such as
occupational licensure while transcending individual state
boundaries and can remain under the jurisdiction of the several
states.
Thank you.
[The statement of Mr. Masters follows:]
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Mr. Cicilline. Thank you, Mr. Masters.
I recognize Dr. Bahn for 5 minutes.
TESTIMONY OF KATE BAHN
Ms. Bahn. Thank you, Chair Cicilline, Ranking Member
Sensenbrenner, and the rest of the committee, for inviting me
to testify today. My name is Kate Bahn. I'm the Director of
Labor Market Policy and an economist at the Washington Center
for Equitable Growth. We seek to advance evidence-backed ideas
and policies that promote strong, stable, and broad-based
growth.
The United States is in the longest labor market expansion
in U.S. history, yet many workers still feel stuck with few
opportunities, or they're changing jobs, but without advancing
their skills or improving their incomes. The U.S. economy has
been suffering from stagnant wage growth, rising income
inequality, and a general decline in the dynamism that once
produced a vibrant labor market. Economists and policymakers
are increasingly recognizing that monopsony is a major cause of
these dynamics.
Monopsony refers to a labor market that lacks competition
among employers when hiring workers, the equivalent of the
product-and-services markets phenomenon of monopoly that refers
to a lack of competition among sellers. While monopoly means
consumers pay higher prices or receive lower quality than a
competitive market, monopsony in labor markets means workers
receive lower wages or worse working conditions than if there
were a more competitive market for their services.
Monopsony has traditionally been thought of as a rare
circumstance where a labor market only has one or very few
employers, such as would be the case in a geographically remote
mining town where workers aren't moving in between jobs in
search of higher pay. This is because they face so-called
frictions, which I know Representative Johnson had asked about,
which is anything that inhibits the ability to search for and
find jobs that would be a better match for workers.
In a dynamic monopsony model such as this, so-called search
frictions and differences between jobs and workers, including
workers having imperfect information about employers,
caregiving responsibilities outside of work, and other
constraints to job mobility, would give employers more power to
set wages below competitive levels while still maintaining a
sufficient supply of workers. These dynamics will foster
inequitable outcomes for workers.
Research by Doug Webber of Temple University uses high-
quality restricted-access data from the U.S. Census Bureau's
Longitudinal Employer Household Dynamics Survey to estimate
economy-wide elasticity of 1.08. What that means, in Webber's
estimations, is that wages are 50 percent lower than economists
would expect in a competitive labor market.
Yet there's still a lot of variation among firms. Examining
monopsony by industry, Webber finds that wages in manufacturing
appear to be more competitive, while healthcare and
administrative support are the least competitive, giving
employers the most wage-setting power in these industries.
Evidence further points to monopsony being particularly
detrimental to women workers. Further research by Webber finds
that monopsony contributes to the overall gender wage gap. This
research estimates that women's greater job search frictions
compared to men leads to 3.3 percent lower earnings. That is
equivalent to $131 monthly penalty for the median female worker
and is essentially a tax on women workers equivalent to half
the taxes that workers pay on their income under the Federal
Insurance Contributions Act, or FICA.
Webber's analysis concludes that the majority of this
difference is due to marriage and child penalties that women
face that have no similar effect on men.
The gender-specific social expectations that women face not
only impact their disproportionate burden for caretaking in
their families, but also reduces their economic opportunities
in the labor market. Furthermore, gender-based discrimination
in hiring and treatment at work may leave women captive to
accept jobs in less-than-ideal conditions or quit and go into
potentially lower-paying, lower-quality jobs.
Research suggests that sexual harassment is significantly
underreported due to barriers in the complaint process and
fears of retaliation. This often leaves women workers with two
options: Leave their jobs without a better employment
opportunity or put up with harassment with little recourse.
A 2017 study by sociologists McLaughlin, Uggen, and
Blackstone finds that sexual harassment has negative financial
costs on women. Rather than changing jobs based on better
opportunities, women are changing jobs to avoid sexual
harassment and taking jobs that pay less or offer less growth,
thus stifling their career trajectory.
This is reinforced by additional research from the U.S.
military finding that sexual harassment increases the turnover
of servicewomen, even when controlling for factors that would
predict increased job attachment, such as job satisfaction and
organizational commitment.
In cases of decreased competition for workers, workers who
have experienced harassment on the job may simply not be able
to find another adequate job and could stay in a hostile work
environment. As McLaughlin, Uggen, and Blackstone note in their
recent study on the financial consequences of sexual
harassment, firm-specific human capital is closely linked to
earnings, which means that workers may be disinclined to leave
their jobs when they have invested in their skills at their
current employer.
Employer monopsony power such as exists in many rural labor
markets today may just make it impossible to find another job.
When women workers are more likely to quit their jobs for
reasons other than seeking a better fit and higher pay or they
stay in bad jobs, they ultimately will appear to have lower pay
sensitivity. Employers are able to take advantage of women
revealed lower pay sensitivity by offering them lower pay
without being worried about not being able to compete for a
sufficient supply of workers.
Contrary to theories of discrimination that believe
discrimination can be competed away, in monopsony markets women
will have worse outside options when experiencing harassment at
work.
Understanding the myriad of causes of the U.S. labor market
monopsony is crucial to implementing policies to address
employer wage-setting power. No silver bullet policy solution
can solve monopsony when it's the result of multiple factors,
such as historical barriers and repressive social norms faced
by women. So, research that looks at the several causes of wage
exploitation is a crucial step in increasing worker well-being.
Instituting policies that increase the outside options
available to workers, including--
Mr. Cicilline. Dr. Bahn, your time has expired. If you
could just conclude.
Ms. Bahn. Yeah, sure. Thank you.
Instituting policies that increase the outside options
available to workers, including policies that reduce search
costs or make it easier for workers to change jobs is a
necessary step towards limiting the ability of employers to
suppress wages and take advantage of workers.
Thank you.
[The statement of Ms. Bahn follows:]
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Mr. Cicilline. Thank you so much.
We now recognize Dr. Topel, who is going to testify from
Chicago via video.
You're recognized for 5 minutes, sir.
TESTIMONY OF ROBERT TOPEL
Mr. Topel. Thank you. Let me just make sure you can hear
me.
Mr. Cicilline. Yes, we can.
Mr. Topel. Okay. Good.
Thanks for having me. Thanks for accommodating my need to
be here in Chicago at the university.
I'm going to skip a few details because a lot has come up
in the discussion from other witnesses. As I understand things,
the legislation being considered by the Committee would seek to
regulate or prohibit certain business practices or conduct that
might harm workers when used by employers with a degree of
monopsony power, as defined by other witnesses here today.
In those situations, I've not found it useful to use a
merger guidelines type exercise of market definition, which
asks what is the labor market in which an employer or employers
might have some degree of market power. Rather, as in the
analysis of alleged anti-competitive practices in product
markets, it's more useful to analyze the practice directly,
weighing punitive harms of the practice against any possible
pro-competitive effects.
Such an analysis has several steps. First, does the
challenged practice, such as a noncompete clause, have a pro-
competitive justification? The existence of such a
justification is often demonstrated by the fact that employers
without substantive monopsony power use it.
Second, if the practice does have a pro-competitive
rationale, does it also have a plausible anti-competitive
impact?
Third, if the practice has both a possible anti-competitive
impact and a pro-competitive justification, do the benefits of
the latter offset the costs of the former? Further, even if the
pro-competitive effects dominate, is there a less restrictive
practice that would achieve the same pro-competitive benefit?
That's the basic framework I have applied in no-poach and
noncompete agreements, but it also applies to state-imposed
occupational licensing schemes.
Let me say a little bit about no-poach agreements. Under a
no-poach agreement, a set of business entities agree they will
not recruit or hire certain types of employees from other
parties to the agreement. In evaluating the competitive effects
of such agreements, it is important to distinguish between
collusive agreements that are meant to suppress labor market
competition without much pro-competitive justification and
agreements among Members of a joint venture or a franchise
business model where no-poach agreements have clear pro-
competitive justifications.
Because of this, I believe a uniform prohibition on no-
poach agreements would be unwise and that additional
legislation restricting such agreements is unwarranted. In
other words, we have the tools.
Certain no-poach agreements are nakedly collusive and can
be challenged under existing antitrust law. For example, in
high tech employees, it was found that Apple, Pixar, and other
Silicon Valley employers have entered into a set of bilateral
agreements to refrain from actively recruiting each other's
employees via cold calling. Individuals who unilaterally sought
to move from, say, Apple to Pixar by applying for a position
were not covered by the agreement, and so Pixar could hire them
without violating the agreement with Apple.
Even so, this is a horizontal agreement among competitors
who were not engaged in any formal joint venture. As such, the
agreements were found to be per se violations of section 1 of
the Sherman Act, which prohibits horizontal agreements in
restraint of trade. Though the agreements might have certain
pro-competitive benefits, it's unlikely that any benefits
derived from applying a ``rule of reason'' analysis to every
no-poach agreement that might be challenged would offset the
cost of such case-by-case evaluation.
Subject to carve-outs for joint ventures in related
business models, per se illegality of horizontal no-poach
agreements is justified in my view. But, existing law is
sufficient to achieve this. As I tell my students, don't do
that.
Even in such per se situations, there's a separate issue
related to the extent of harm caused by an illegal no-poach
agreement. I'm going to skip over this part of my testimony
because others can read it, and I want to get down to the
economics of no-poach agreements that are different in the case
of joint ventures or franchises, because there's typically a
pro-competitive justification.
Suppose that instead of the horizontal agreement described
earlier, Apple and Pixar were engaged in a pro-competitive
joint venture that required cooperation among teams of software
engineers in each company. It's reasonable to assume that Apple
and Pixar invest into identifying, recruiting, and training
these skilled employees who are now going to work together. The
cooperating firms are thus partners in the joint project and
competitors in the market for talent.
The simple Act of project cooperation reveals information
on employee talents, and both firms know that other workers
have been trained in firm-specific methods that might be
valuable. They'd like to steal the best who were discovered as
a result of the cooperation, but in so doing they reduce the
incentive to cooperate in the joint venture and reduce the
incentive to invest in identifying, recruiting, and training
talented people.
A no-poach agreement with specified parameters, such as a
fixed duration and types of workers covered, protects these
investments and, therefore, has a credible pro-competitive
justification.
Mr. Cicilline. Dr. Topel, your time has expired, so if you
could just summarize.
Mr. Topel. Sure.
Whether such an agreement is pro-competitive overall is a
question of balancing these effects against possible harms,
which means that such agreements should not be considered per
se illegal. My analysis of no-poach agreements for franchise
agreements is very similar and, also my analysis of noncompete
clauses.
I'll close there. Thank you.
[The statement of Mr. Topel follows:]
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Mr. Cicilline. Thank you, Dr. Topel.
We'll now proceed under the 5-minute rule, and I recognize
the gentleman from Georgia, Mr. Johnson, for 5 minutes.
Mr. Johnson. Thank you.
Dr. Starr, you talked about the camp counselors, yoga
instructors, temporarily employed packers at Amazon being
subject to an 18-month noncompete agreement.
Professor Paul, have courts ruled on the legality of an 18-
month noncompete clause applicable to jobs such as those that I
just mentioned?
Mr. Cicilline. Please put your microphone on.
Ms. Paul. Sorry. I keep doing that.
So currently, without the intervention of antitrust law,
state law as to noncompete agreement varies state by state, so
as was discussed, in some states take a very--ban noncompete
agreements entirely.
Most other states use what's called a reasonableness test,
and they look at whether, first, the purpose of the noncompete
agreement is a legitimate one and then whether the geographic--
usually the geographical and the temporal duration of the
noncompete agreement is reasonable given that objective. So, it
would be context dependent on the facts of that case, that
sector, that particular labor market, and the text of the
agreement.
In my opinion, under that reasonableness test, none of
those should be reasonable--
Mr. Johnson. Courts have been finding, however, that these
types of clauses affecting those kinds of occupations that
don't involve trade secrets or proprietary information, state
courts have been ruling in favor of these noncompete clauses.
Is that correct?
Ms. Paul. There are a variety of decisions going both ways.
I think there are, unfortunately, too many decisions that
uphold such noncompete agreements.
Mr. Johnson. Dr. Topel, do you see a problem--I know your
testimony is pretty much limited to poaching agreements and
those pretty much apply to high end, high tech employment. But,
I'm speaking of just regular, average workers out here who
don't have access to trade secrets or proprietary information.
Do you believe that these types of noncompete agreements should
be enforced against those workers by state courts or do you
think that perhaps a Federal remedy may be necessary?
Mr. Topel. I believe that the remedies are in hand in the
nature of current antitrust law and that these should be judged
on a case-by-case basis because in many situations the practice
itself has a pro-competitive justification.
Mr. Johnson. Well, cite me some of those justifications
that could exist for these types of positions that we just
talked about--camp counselors, yoga instructors, packers
temporarily employed at Amazon. What could be a justification
for a noncompete agreement in those fields?
Mr. Topel. Let me come back to what I said. In my testimony
about non-poach agreements here, or no-poach agreements--
Mr. Johnson. I'm talking about noncompete agreements here.
Mr. Topel. I understand. I was about to finish my sentence
by saying in the context of noncompetes, similar forces matter
because, after all--
Mr. Johnson. Cite me some of those factors.
Mr. Topel. That's what I'm getting to, sir. In these
contexts, employers invest heavily in locating talented people.
Talented people are not easy to come by, and you invest in
finding them, recruiting them, training them, and it's
reasonable to expect that people would want to get the returns
on those investments.
Having said that, it depends on the context--
Mr. Johnson. Well, let me stop you right there and ask Dr.
Starr, what do you think about that response?
Mr. Starr. I think that Dr. Topel makes a good point that
the courts have made for years, actually, I think that the
evidence doesn't quite support that position.
Mr. Johnson. Dr. Marinescu, what is your response?
Ms. Marinescu. I agree with Dr. Starr that the evidence
doesn't seem to support that position.
Mr. Johnson. Dr. Topel?
Mr. Topel. Yes?
Mr. Johnson. Do you disagree with those two responses?
Mr. Topel. Remember that both of those responses are making
a sweeping statement. As I said, it depends on the context,
which is why I think it should be judged on a case-by-case
basis. If we can't establish here that a business practice
that's so broad, that has existed for so long even for firms
that don't have substantive monopsony power, is uniformly anti-
competitive or should be subject to a uniform prohibition.
That's why I think it shouldn't be judged under the usual
methods for section 2 violations.
Mr. Cicilline. The gentleman's time is expired.
I now recognize the gentlelady from Pennsylvania, Ms.
Scanlon, for 5 minutes.
Ms. Scanlon. Thank you.
I'd like to start by thanking our panelists for their
written testimony and for appearing, whether virtually or
otherwise, before the Committee today.
I represent southeastern Pennsylvania, and we've faced a
lot of economic hardship in recent years and felt the effects
of stagnant wages. Recent studies have shown that families at
the median income, around $75,000 a year, end up underwater or
in debt every year once they pay for basics like childcare and
healthcare. There's no money left for retirement, for education
funding in the future. About 70 percent of the families in my
district make less than that.
So, we've seen some major disruptions in our local economy,
our local labor force this year, and I'd like to explore that
with Dr. Marinescu because she's from that area, from my alma
mater, University of Pennsylvania.
Seeing as you work in the Philadelphia region, I'm sure
you're aware of the closure of Hahnemann Hospital. Can you
speak a little to the sensitivity of healthcare workers to
labor monopsony and why these folks might be at greater risk
and what the Hahnemann closure means for our region?
Ms. Marinescu. Thank you for raising this question.
So fundamentally, the effects of a merger or a closure are
to affect the competition for workers. So, in the case of a
closure, there is one particular hospital that now is no longer
hiring workers, which means that there is less competition in
the labor market.
Especially if we're talking about a more isolated labor
market where there aren't many hospitals, such a closure is
likely to negatively impact wages. This is for two reasons, I
want to be clear.
One is simply a reduction in labor demand, what we call--
there are simply fewer jobs, and that's a natural consequence
that wages will go down.
Furthermore, based on my work, I expect a second impact
which is, on top of that, a reduction in competition will tend
to reduce wages even more. Based on the analysis of a hospital
merger, which also reduces competition, we can tell that this
can reduce wage growth by as much as 25 percent.
Again, this is a double warning that comes on top of the
fact that we have fewer jobs, which already reduces wages by
itself.
Ms. Scanlon. Okay. We have a similar example. We have the
PES refinery in Philadelphia which recently had an explosion
and shutdown, and we've heard reports about, since that was
sort of a unique kind of a job prospect, we're hearing that the
workers there have to move to other states and do things like
that. Can you talk about the impact of something like that?
Ms. Marinescu. Yes. Thank you so much.
So, an argument that I hear a lot when I talk about labor
market concentration, and I define it by occupation, is people
will tell me, low-wage workers, they don't have a lot of skills
and they can do any job. Go be a fast-food worker or a cashier,
it doesn't matter.
The reality is what we see in our data is that no matter
the skill, workers are similarly attached to their occupation.
Of course, we could also expect that if your skill is
particularly unique and there aren't many other uses of it,
this is a situation where your current job disappearing puts
you in a much worse situation.
So that even if you're able to find a job, this job is not
the right job for your skills and you're going to get paid less
than you would have gotten paid in a situation with lots of
employers vying for exactly the type of skill you have. So, we
have a lot of competition in the labor market.
Ms. Scanlon. Thank you.
Dr. Bahn, I wanted to translate a little bit of your paper
maybe into English. So, you said that monopsony is detrimental
to female workers because they have greater job search
friction. So, I translate that to mean they have a harder time
changing jobs because they have childcare obligations and
there's a threat in some job situations of harassment or a
hostile work environment.
Can you talk a little bit about some of the policies that
might help reduce job search friction? The ones that come to
mind for me are increasing access to childcare and enforcement
of sexual harassment policies.
Ms. Bahn. Yeah. So, job search frictions are anything that
make it hard to change jobs, and one topic people have talked
about is mobility across space. Particularly if you are a
secondary income earner or have primary responsibility for
caretaking in your family, it may be hard for you to get up and
move to another state. So, what you want to do in the case
where you're not able to maybe move far for a new job is
increase your bargaining power, making anything easier for you
to bargain with your employer for higher wages.
There's evidence that I think women can have higher
bargaining power if they have a higher floor that they're
starting from, that they have things like any sort of universal
policy that allows for them to afford childcare, have access to
paid leave, paid sick, flexible scheduling, scheduling that
they know of in advance. All these types of policies that just
sort of raise the floor for the types of jobs that workers are
working and the types of support they need to have a job will
make it easier for them to bargain with employers so they can
have higher wages and reduces their employer's wage-setting
power so employers are less likely to undercut their wages.
Ms. Scanlon. Okay. Thank you very much.
I yield back.
Mr. Cicilline. I thank the gentlelady for yielding back.
I now recognize the gentlelady from Washington, Ms.
Jayapal, for 5 minutes.
Ms. Jayapal. Thank you, Mr. Chair.
An increasing number of workers earn some or all their
living working through online platforms such as Uber. Still,
more workers are classified as independent contractors, a
status that comes with very few protections and many barriers
when they organize. These workers face problems on the job like
low compensation rates, little recourse if the company decides
to terminate their account, and rating systems that are
inherently biased against workers of color. Although in some
cases antitrust laws may provide some protections for these
workers, in other cases, the law falls short or may even harm
workers who try to organize together and improve their working
conditions.
Professor Paul, we've seen instances where on-demand
companies crack down on worker organizing. For example, a group
of Uber drivers here in DC worked together to generate higher
pay in a system in which they're not classified as employees,
since rates of pay for those drivers are unpredictable, can be
as low as $8.77 an hour. In essence, they were acting together
for higher pay in a system in which they're not classified as
employees. When their activities were exposed, these workers
were kicked out of the Uber app.
When workers on these platforms try to organize, are they
protected under antitrust law?
Ms. Paul. They are not.
Ms. Jayapal. So, they are not actively protected. Are they,
in fact, impeded?
Ms. Paul. They are, in fact, impeded. I can elaborate if
you would like me to.
Ms. Jayapal. Yes, please.
Ms. Paul. Yes. So, for example, in addition to the example
that you gave, as you know, the city of Seattle a few years ago
passed an ordinance providing for collective bargaining rights
for rideshare drivers in Seattle, taking advantage of what's
known as the state action exemption to antitrust law.
That was met by a Federal preemption lawsuit by the U.S.
Chamber of Commerce. I'm sad to say that the Department of
Justice and the Federal Trade Commission actually filed a brief
in favor of the Chamber and against workers, some of the most
vulnerable workers in the gig economy. Rideshare drivers
currently do not enjoy collective bargaining rights in Seattle
or anywhere else in the country and neither do other gig
economy workers.
So, that this is really kind of a perverse position for our
antitrust institutions to take, given the original purposes of
antitrust law that I described in my testimony and given that
legislators were very clear that they did not intend to
prescribe this type of cooperation, and instead, intended to
proscribe precisely the type of coordination that is currently
being permitted by our antitrust institutions, namely, Uber and
other dominant platforms, fixing prices across thousands,
hundreds of thousands of putatively independent businesses.
Ms. Jayapal. Thank you for that excellent explanation. We
were devastated in Seattle to see that happen.
Under current law, workers classified or misclassified as
independent contractors are prevented from collective
bargaining, as you've talked about. How can antitrust law be
reconfigured to better protect workers when they join together
to protect their economic interests?
Ms. Paul. Yeah, that's a great question. So, I think in the
first instance, we could see a reordering of enforcement
priorities among our enforcement agencies. So, currently, it
seems like the Federal Trade Commission is actually
prioritizing, cracking down on the cooperation--reasonable
cooperation of, frankly, not just gig economy workers, but also
other workers beyond the bounds of employment. So, it's really
not just the gig economy. It's thousands, hundreds of thousands
of truck drivers in this country are independent contractors.
That continues to be an important job for low-wage workers and
mid-wage workers, and it's also independent professionals and
entrepreneurs.
So, the FTC has filed actions involving an investigations
from everyone from church organists to truck drivers. We could
see, so in the first instance, a reordering of enforcement
priorities, let's perhaps consider the coordination top down
control firm dominant platforms like Uber are engaging in,
rather than workers and independent professionals. Then,
secondly, it might be, given decades of some unfavorable
decisions since the 1970s or so, there might be room for
congressional action here.
Ms. Jayapal. There's a major power imbalance between these
large cooperation that classify workers as independent
contractors and the workers that enrich the corporations. That
sounds like a monopsony where one powerful buyer is controlling
all the sellers.
How do we address that particular imbalance of power?
Ms. Paul. So, that antitrust law, as configured, has the
ability to go after powerful buyers. I would say a couple of
things. It goes beyond monopsony, because that assumes already
that we're defining coordination--economic coordination rights
in terms of firms. But antitrust law unfortunately
prioritizes--current antitrust law as currently constituted,
prioritizes the coordination rights of large firms at the
expense of small players. I think that we really need to see a
reversal of that again, so that we make a priority of
coordination that's engaged in by dominant platforms and
dominant firms rather than small players.
Ms. Jayapal. Very helpful. Thank you so much.
I yield back.
Mr. Cicilline. I now recognize the gentleman from Colorado,
Mr. Neguse, for 5 minutes.
Mr. Neguse. Thank you, Mr. Chair.
Just to follow up on a point, a salient point that my
colleague from Washington had raised, Professor Paul, in your
testimony, you note that Congress in the Clayton Act exempted
organized labor from being a target of antitrust laws. Of
course, today, the rampant misclassification of workers as
independent contractors is exposing collective action by
working people to antitrust attack. It was interesting the
example you noted.
The ordinance passed by the city of Seattle that would have
given independent contractors like Uber drivers the right to
collectively bargain was struck down in part on antitrust
grounds and that the antitrust agencies actually filed a brief
against the workers in favor of the Chamber of Commerce.
So, given that trend, are there specific steps Congress
should take to ensure that independent contractors receive
protections that lawmakers intended to cover workers?
Ms. Paul. Thank you for that question. My own opinion is
that Congress should consider a broad exemption for work--all
workers, whether they're defined as employees or not, anyone
who sells labor or services, even if they have small capital
investments, independent professionals. I would actually
suggest that Congress consider an exemption for small
businesses as well, because, again, when we look at the
history, this is very much what was intended. I think that this
is sustainable.
I would point to an example, because there are other
jurisdictions, other countries that have implemented this type
of exemption. Australia's competition authority has recently
implemented such a broad exemption. This is ultimately good for
workers and small business in three ways.
First, it helps small businesses gain sustainable returns
that allows them to reinvest in their businesses, in workers,
and in communities. It also prevents the kind of gaming the
borders that we are going to see, unfortunately, as we've
already seen, with any kind of labor exemption. I fear that if
we just broaden the labor exemption, that we will then see a
new kind of gaming of the borders by businesses where we just--
where businesses sort of have truck drivers line up at the
office and, okay, now we're going to incorporate three of you
as an LLC. You don't get the labor exemption. We've seen that
kind of gaming at the border, so we need broad action to
reinstate the original congressional purposes.
Mr. Neguse. Thank you.
Separate subject, obviously tangentially related on
noncompetes. So, I just would like to try to achieve some
consensus amongst the many witnesses, all of whom we appreciate
your testimony.
So, Mr. Starr--sorry--Dr. Starr--I apologize--I take it you
would concede that noncompetes may be justified under certain
circumstances. Is that a safe assumption for you to--
Mr. Starr. For example, I have no problem with executives
signing noncompetes with their legal teams at their side. I
have no problem.
Mr. Neguse. Mr. Topel, I know you'll agree with that, and
obviously your written testimony attests to that, correct?
Mr. Topel. Yes.
Mr. Neguse. Okay. By that same token, Mr. Starr--I'm
sorry--Professor Starr, in your testimony you note this.
There's no public interest for low-wage workers at Jimmy
John's, by way of example, to be tied into these noncompete
agreements. You agree with that?
Mr. Starr. As Dr. Sanjukta said, in most states, they
require some sort of protectable interest. I think that in many
of these cases, these low-wage workers don't have access to
what would be a traditionally protectable interest.
Mr. Neguse. Mr. Topel, I presume you'd agree with that as
well?
Mr. Topel. I mean, the example of Jimmy John's, I don't
know the details, but it's hard to imagine why the noncompete,
other than the franchising argument we had about nonpoaching.
So, if they said you can't work at Wendy's, I would view that
as kind of a competitive problem.
Mr. Neguse. Precisely. Right. So, I guess my point here is
that, clearly, there's somewhere in the middle here where I
think we all can come to an agreement that noncompetes may be
appropriate in certain circumstances, but the way in which
they're being abused in a variety of different industries and
across the labor market in the aggregate is clearly not
conducive to wage growth, nor in the public interest.
So, I'd be interested--I know my time will soon expire--but
interested to hear from this panoply of panelists about
solutions that we could potentially get through this Congress
that would meet that consensus.
Dr. Starr, perhaps your recommendation to the Congress that
we compel the FTC to commission a study, a 6(b) study, to help
expand our understanding of potentially anticompetitive
employment contracting practices, I suspect that might be, in
fact, one way for all of us to kind of move forward to get
better data so that we can ultimately craft a solution that
addresses this in a surgical way.
So, with that, I would yield back the balance of my time.
Mr. Cicilline. I thank the gentleman.
I now recognize myself for 5 minutes.
Dr. Marinescu, I want to start with you. I want to give you
an opportunity to respond to some of the criticism from others.
Some scholars have argued that there's no causation between
market concentration and wages, and that wage stagnation in the
United States is actually attributable to other factors, such
as weakening of labor law.
What is your response to that criticism?
Ms. Marinescu. Thank you. So, for the point about wage
stagnation, I think the evidence right now does not clearly
point that an increase in concentration is the cause of wage
stagnation. Nevertheless, my research and others clearly show
that this is a contributor in making wages today lower than
they would otherwise be. So, case closed. This needs to be
addressed, whether it has historically contributed. So that's
the first point.
Second, some people in academia have criticized--so just
let me read from this very briefly. Does it make any sense to
ask if labor market concentrations cause lower wages? There
might be other factors at play. So, our work is very careful in
controlling for a number of factors, but we have two
additional--since that original study, we have two additional
things.
First, the study on hospital mergers that I told you about
is a very well quasi-experimental study that goes in the same
direction. Secondly, the same person who criticized that, Steve
Berry at Yale, is now a coauthor, and we're doing it the right
way and are still finding that there's a lot of monopsony
power.
Mr. Cicilline. Thank you.
Also, some have argued that labor monopsony is not really
an antitrust problem, and that making labor markets more
competitive will not actually result in a reduction of employer
power.
What is your response to that? Why do you think an
antitrust framework is an appropriate lens through which to
view labor monopsony in particular?
Ms. Marinescu. Not all monopsony can be addressed by
antitrust. For example, the fact that people prefer to work
close to home is not something that antitrust can do something
about. But there are many dimensions through which behavior of
agents in the labor market affects competitions, including
things like mergers, noncompetes, and so on. This is where
antitrust has a role to play in combating monopsony power that
suppresses wages today in the U.S. labor market.
Mr. Cicilline. Finally, in your testimony, you described
the legislative proposal developed by you and Eric Posner to
amend the Sherman Antitrust Act to prohibit labor market
monopsony, which we'll certainly look at very carefully. Are
there other ways that you think that Congress should think
about addressing this issue, whether through legislation or
oversight?
Ms. Marinescu. I believe that short of doing legislation,
allowing the current antitrust federal agencies more resources
to be able to invest in antitrust labor enforcement, which they
have started doing, is probably something that would be helpful
in making progress on that front.
Mr. Cicilline. Thank you.
Dr. Starr, you mentioned California as one of the few
states that does not allow for the enforcement of most
noncompete agreements, and we recognize California as one of
the country's most innovative states.
What might this tell us about the importance of noncompetes
for innovation? Is it true that, as some businesses claim, wide
use of noncompete agreements is essential in order for firms to
invest and to innovate?
Mr. Starr. That's a great point. I think that the point
about California and its ban on noncompetes, which was adopted
in 1872, as a kind of one of the causes for the rise of Silicon
Valley, it relates to the ways that innovation occur, and
there's two ways. One is you can protect intellectual property
like we have with our patent system. A second way is you can
spur mobility such that people share ideas across firm
boundaries, which results in a recombination of ideas, and so
you get new ideas and better ideas. So, Silicon Valley
benefited from that immensely, though it is debatable.
I think on the investment front, we have to keep in mind
that there are many alternatives to firms. They can rely on
trade secrets. They can rely on patents. They don't necessarily
need to use noncompetes, per se, to invest in trade secrets. I
will note that we do see a little bit higher trade secret
litigation in California. It's unclear if that's because the
tech giants are over there or if it's because of the noncompete
laws.
But, in general, in the academic literature, there's a
little bit of mixed evidence on the effect of noncompete laws
on innovation. There is some evidence that investment is lower
in states that more vigorously enforce noncompetes. In some
states, some studies find that when states kind of increase
their enforceability, that firms do invest in a little bit
riskier innovation. So, there's some evidence cutting both ways
there.
Mr. Cicilline. Thank you.
Professor Paul, my last question. As you know, the
Department of Justice considers no-poach agreements between
competitors to be per se illegal. However, as you pointed out,
the Department supports exemptions in the franchise context,
essentially green-lighting vertical no-poach agreements.
Do you see any reason there should be a distinction between
so-called naked no-poach agreements and franchise no-poach
agreements? You heard the testimony, so do you see any basis
for that distinction?
Ms. Paul. I really do not. Both restrain competition--
horizontal competition, so the effect is the same. If anything,
my opinion based on what I said about vertical restraints, is
that vertical restraints should be regulated much more
stringently than horizontal restraints, because they often
embody top down control by a more powerful firm, which is
exactly what franchisors do to franchisees. I see no benefit.
The final point I want to make about that is that, at least
in the DOJ briefs that I looked at, there were very speculative
consumer benefits that were being used to justify this. I think
this is one problem. If antitrust law is saying it's going look
at workers and labor markets as well, we can't use consumer--
speculative consumer benefits to justify harms to workers.
Mr. Cicilline. Thank you.
I now seek unanimous consent to include a number of letters
and statements in the record regarding the state of labor
competition, without objection.
I will also ask unanimous consent to include the statement
of Chair of the full Committee, Mr. Nadler, and the statement
of the Ranking Member of the full committee, Mr. Collins, as
part of the record, without objection.
[The information follows:]
MR. CICILLINE FOR THE RECORD
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Mr. Cicilline. This concludes today's hearing. Thank you
again to our very distinguished witnesses for attending and for
your very useful testimony.
Without objection, all Members will have 5 legislative days
to submit additional written questions for the witnesses or
additional materials for the record.
Without objection, the hearing is adjourned.
[Whereupon, at 12:15 p.m., the Subcommittee was adjourned.]
APPENDIX
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