According to the WS-PS model, the FTC's 2024 ban on non-compete clauses is expected to increase real wages. This is because the ban strengthens workers' bargaining power, shifting the wage-setting (WS) curve up, and reduces firms' ability to suppress wages through markdowns, shifting the price-setting (PS) curve up. The combined effect leads to a higher equilibrium real wage.

Predicted Impact of Banning Non-Compete Clauses on Real Wages

In April 2024, the Federal Trade Commission (FTC), a US regulatory body, made the decision to ban the use of non-compete clauses in employment agreements.

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In the United States, non-compete clauses included in employment contracts serve as a significant instrument for companies to exert labor market power, also known as monopsony power, over their employees.

Non-Compete Clauses as a Tool for Monopsony Power

To cite the ebook, use The CORE Econ Team 2023 The Economy 2.0: Macroeconomics Open access e-text https://core-econ.org/the-economy/.

To cite a unit, use The CORE Econ Team 2023 The Economy 2.0: Macroeconomics Open access e-text https://core-econ.org/the-economy/ Unit [unit number] (url).

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