AMAC EXCLUSIVE
Although Joe Biden claims that his policies have been bringing inflation down, his appointees continue to take actions leading to precisely the opposite effect.
One of the worst offenders is Biden’s Federal Trade Commission (FTC) chair Lina Khan. On April 23, the FTC, by a 3-2 vote (with both Republican members dissenting), banned employers from requiring workers to sign noncompete agreements, which prohibit employees from taking jobs with rival firms in the same field for a specified amount of time.
The primary purpose of such agreements is to prevent workers from transmitting trade or technological secrets from their old employer to a new one – in some cases a form of industrial or commercial espionage. The ban would allow existing noncompete agreements with senior executives to remain in force but prohibit new ones, and would immediately render such agreements with all other employees invalid.
The FTC majority maintained that noncompete clauses violate the 110-year-old Clayton Act, which prohibits unfair methods of competition. But as the Wall Street Journal notes, the new rule “marks the first time in more than 50 years that FTC officials have issued a regulation to mandate an economywide change in how companies compete” – rather than investigating and suing individual companies for practices deemed to violate the law (most commonly, antitrust law).
Khan justified the rule by claiming that noncompete agreements “rob people of their economic liberty” along with “all sorts of other freedoms.”
But noncompete agreements do no such thing. In the United States, nobody is forced to work for one employer rather than another. Nobody must choose to work in a particular field, or for a particular employer, that will require him to sign a noncompete agreement as a condition of his employment. Nor do noncompete agreements prevent anyone from taking a job in a different field, or (once a limited time has passed) with an employer in the same field.
As justification for its ruling, Khan’s FTC argued that noncompete agreements, by hampering competition for employees working for rival firms, lower employee wages and benefits. But as the Journal reports, the Biden administration had previously sought a ban on noncompete agreements in 2021 in accordance with the wishes of organized labor. Notably, during a recent campaign appearance with union members, Biden boasted that he was “dancing with the gal that brung him,” or words to that effect – meaning that his re-election prospects depend heavily on continued union support.
It is true that the use of noncompete agreements has grown widely in recent years, to the point that (according to the Journal) they affect nearly one in five workers, including lower-wage employees like restaurant workers and hair stylists, who “lack access to intellectual property or trade secrets.” Businesses that use the agreements more widely claim that they encourage companies to make investments in training their workforces, with some confidence that the employees will remain with them.
But objections to the extension of such agreements have led some states, such as California, to ban them, enabling talented tech workers to switch employers easily or start their own businesses. However, in 2023, New York Governor Kathy Hochul, a Democrat, vetoed a bill that would have banned the agreements completely, including on Wall Street, holding that they should be reserved for certain higher-level executives or professionals who might indeed possess valuable, confidential information that it would be harmful to their employers to share as soon as the executive changes jobs.
No one doubts the authority of state governments to restrain or even ban noncompete agreements by law, whether or not such bans are prudent as a matter of policy. The bans might well have the effect of driving major employers to transfer their locations elsewhere, but such is the virtue of our federal system: it encourages healthy economic competition and experimentation within the states.
What is problematic about the FTC decision is its lack of any clear legal authority, whether at the federal or state level. The U.S. Chamber of Commerce has vowed to sue the FTC on just this ground, calling the action an “unlawful power grab” and holding, along with the two dissenting FTC commissioners, that the subject should be left to the states. In her dissent, FTC Republican Commissioner Melissa Holyoak held that the FTC could still use enforcement actions to punish particular noncompete agreements that were specifically found to be anticompetitive in their effects.
It should be noted as well that in a legal environment that allows noncompete agreements, the foregoing of such mandates can also be an advantage to employers seeking to lure talented employees in the first place, thus enhancing the employees’ bargaining position.
But what is absurd is for President Biden, who celebrated the FTC ruling, to continue claiming that his policies are reducing the continued high rate of inflation.
The FTC estimates that its ruling will boost the earnings of workers who are freed from noncompete agreements as a condition of employment by $400 billion or more over the next decade, as employers will have to compete to retain workers by raising their compensation. If so, this means that some workers will see their wages rise, while the cost of doing business for their employers, and hence the prices they charge for their products, will increase for all consumers. The ruling is thus no less likely to contribute to inflation than the various elements of Biden’s thoroughly misnamed “Inflation Reduction Act.”
Instead of boosting the extreme and sometimes lawless actions of Lina Khan’s FTC (which has blocked mergers among low-cost airlines and supermarket chains that might be essential to keeping the businesses alive – effectively reducing the number of companies competing in a given field), an administration that truly aimed at inflation reduction and promoting competition would stop opposing right-to-work laws, which defend workers’ freedom by saving them from having to join unions as a condition of employment. If Biden truly wanted to lower inflation, his National Labor Relations Board would also stop promoting “card check” in union certification elections (which, by abolishing the secret ballot, enables unions to intimidate workers into voting “yes”), as it began doing last year.
Additionally, an administration that aimed at promoting full employment would stop encouraging raises in minimum wage laws, which prohibit employers from offering jobs to novice employees doing basic manual labor such as working in fast-food restaurants or supermarkets, making it more economical for the employers to substitute self-service devices like automatic checkout.
As is his wont, Joe Biden continues to spread economic misinformation that is really designed to conceal the essence of his policies: benefit a favored few, at the expense of the many. Although only 6.9 percent of American private-sector workers are unionized, unions pack outsized political clout thanks to their PAC donations and in-kind campaign contributions such as “get out the vote” drives.
Biden’s appointees, including those named to regulatory agencies like the FTC, the NLRB, and the Federal Communications Commission (currently poised to announce the restoration of the discredited policy of “net neutrality”) are critical players in advantaging Biden’s favored few.
Judging from the recent flurry of expanded regulatory activity stretching beyond the law, it appears that Biden’s regulators fear his re-election campaign will fail, so they want to pack in as many ill-advised liberal priorities as they can before they too are booted from office.
David Lewis Schaefer is a Professor Emeritus of Political Science at College of the Holy Cross.
