Employment contracts that aim to prevent workers from moving to a rival firm are in the federal government's sights over concerns they could be stifling job mobility and holding down wages.
Assistant Minister for Competition, Charities and Treasury, Andrew Leigh, has asked Treasury and the Australian Competition and Consumer Commission (ACCC) to advise on the impact of so-called non-compete and no-poach clauses in employment and business contracts and what action the government should take.
In a speech to be delivered in Melbourne on Friday, Dr Leigh argues employers have been using their market power to suppress wages, including by discouraging competitors and making it difficult for workers to switch jobs.
The minister cites Treasury research showing that wage gains have been held back where job opportunities are concentrated among fewer employers, particularly in country towns and rural areas.
The Treasury research shows pay gains between 2011 and 2015 were one per cent lower than they would otherwise have been because workers had fewer employers to choose from, and the effects were particularly marked outside the major cities.
Dr Leigh says the problem has intensified in recent years because of a slowdown in the number of new businesses and starts ups in the economy, underlining the need to break up monopolies and promote competition.
"When firms enter [a market], they tend to compete and poach staff away from existing firms to grow. As such, they create better outside options for workers," the minister says.
"The Treasury analysis finds that declining firm entry and declining economic dynamism appear to be important factors contributing to the increased impact of concentration."
The ACCC has expressed concern that less dynamic markets can give businesses excessive bargaining power over suppliers.
The competition watchdog told the Organisation of Economic Cooperation and Development last year that its studies showed that in a range of sectors "buyers' power, and the inequality of bargaining power that underlies it, creates real risks of potential harm to the effective operation of markets".
Dr Leigh says these harms can extend to workers, who supply businesses with their labour.
The minister says a particular concern is non-compete and no-poach clauses in employment contracts, citing as an example McDonald's contracts banning franchisees from recruiting workers currently employed at another McDonald's store.
Although such clauses can only be enforced where they are shown to reasonably protect a legitimate business interest, Dr Leigh says they can act as a deterrent to workers looking to move to another employer.
Treasury estimates that the proportion of workers starting a new job in the previous three months declined from an average of 8.7 per cent between 2002 to 2008 to 7.3 per cent between 2008 and 2019.
Dr Leigh says this decline helps explain the slowdown in wages because across a career, the biggest average pay gains are made when people switch employers.
"For a worker who is keen for a pay rise, the best chance is to get a new job - or at least a new job offer," he says, noting that the average weekly full-time wage has barely shifted in the past decade.
"After inflation, Australian workers earned only $18 per week more in November 2022 than they did in November 2013," the minister says.
Dr Leigh says possible changes may include extending laws passed last year banning unfair contracts for small businesses to include employees or increasing opportunities for workers to collectively bargain for better pay and conditions.
"Uncompetitive markets don't just hurt consumers. They can hurt workers too," he says.
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