(Bloomberg Opinion) -- President Joe Biden’s executive order promoting U.S. economic competition includes some welcome and long-needed changes to U.S. labor markets — but its proposed reform of antitrust policy threatens to undermine them.
The order encourages the Federal Trade Commission to ban or limit anti-competitive practices in labor markets, such as non-compete agreements, occupational licensing requirements and collaboration by employers to suppress wages. These measures are vital to ensuring that the economic benefits of rapid economic growth and tight labor markets not only lift wages for existing workers, but also draw marginal workers back into the workforce.
They stand in marked contrast to other administration proposals that seek to improve working conditions by limiting competition among workers.
It’s common to think of labor markets as a battleground between existing employers and workers. In that way of thinking, non-compete agreements are good for employers and bad for workers, whereas mandatory collective bargaining is good for workers and bad for employers.
What this type of thinking misses is the importance of workers who are not currently employed. Any constriction at all on competition in labor markets — whether it comes from employers or employees — makes it less likely that firms will take a chance on these marginal workers. Locked out of a full-time entry-level (or re-entry level) job, they can be forced into years or even decades of quasi-dependency on odd jobs, relatives or government programs.
In general, agreements between insiders — in this case existing workers and firms — make the entry of outsiders more difficult. Outsiders, on the other hand, benefit the most when the labor market is as open as possible. Openness is what Biden should prioritize.
The last few years before the pandemic, when the unemployment rate fell further and the workforce expanded to a greater extent than economists thought possible, serve as a reminder that these types of gains are not merely theoretical. Real median household income finally broke out of two decades of doldrums, and inequality measures began to (ever so slightly) improve.
To return to that era, workers need not only more opportunity for work. They also need the kinds of low prices and opportunity that large firms such as Amazon have been able to produce with unprecedented investments in technology and infrastructure.
Biden’s antitrust policy threatens to either break up big companies or force them to do business in less efficient ways. That will hurt workers in two ways.
First, it will erode wages. When higher prices come from limiting the economies of scale that come with large efficient firms, there is no corresponding increase in employment. (Higher prices that come from strong demand, by contrast, can have the side effect of boosting employment, as companies need more workers to meet that demand.) Such price increases are more akin to the ones produced by the supply-chain disruptions of the pandemic, leaving workers and their families worse off.
Second, those price increases will put more pressure on the Federal Reserve to increase interest rates and slow down the economy — which would be bad for workers.
Antitrust policy that dents efficiency and raises prices is exactly the opposite of what the U.S. needs right now. If the administration really wants to maximize the competitive pressure on large U.S. firms, then Biden should rediscover his interest in seeking new trade agreements that could increase exports as well as provide competition for domestic firms. Simply attacking bigness will create higher prices and fewer opportunities for most workers.
Giving all workers — both those with jobs and those without — the best chance in the post-pandemic era requires at least two things: Increasing competition in the labor markets, and refraining from anti-efficiency measures disguised as antitrust policy. Biden deserves credit for proposing the former, but his administration has been too eager to embrace the latter.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Karl W. Smith is a Bloomberg Opinion columnist. He was formerly vice president for federal policy at the Tax Foundation and assistant professor of economics at the University of North Carolina. He is also co-founder of the economics blog Modeled Behavior.
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