The extensive use of non-compete clauses is associated with lower wages and fewer workers moving between jobs, new research by e61 Institute has found.
As many as one in five Australian workers have a non-compete clause in their contract which stops them competing with their employer in a similar industry or area for a period of time after their job ends.
This includes many lower-wage workers such as labourers and childcare workers.
The new research finds that workers at firms that use non-compete clauses extensively are paid 4% less on average than similar workers at similar firms that do not use non-competes.
Workers in lower-skilled occupations faced worse outcomes. After five years in a job, those at firms using non-compete clauses were earning 10 per cent less, despite starting on a similar wage.
“Our research shows that workers at firms using non-compete clauses experience slower wage growth over the first few years of their employment,” said e61 Research Manager Ewan Rankin.
“This is likely because the clause reduces the workers’ power to bargain for higher wages by limiting their future employment options.
“The reduction in wages is particularly acute for lower-skilled workers, likely because they benefit less from any positive effects of non-competes such as encouraging the firm to invest in worker training.”
The research also found that workers at firms which increased their use of non-compete clauses between 2018 and 2023 were subsequently 10 per cent less likely to change jobs - and if they did change jobs, workers were more likely to take off six months or more in-between.
“The results are consistent with a view that the rising use of non-compete clauses has contributed to lower levels of job mobility and wages growth,” said Mr Rankin.
“By locking people into jobs that may not be the right fit for them, non-competes may also be damaging economic growth and innovation.”
The research assesses that non-disclosure agreements offer an alternative method for firms to protect trade secrets and appear to have fewer downsides for job mobility and worker wages.
e61 Institute is non-partisan economic research institute
Contact details:
Charlie Moore: 0452 606 171
