The competition watchdog will investigate if Australian businesses are forcing their staff to sign away their rights to switch jobs for better pay and conditions with claims a lack of competition has contributed to real wages growing just $18 a week over the past decade.

Competition Minister Andrew Leigh will on Thursday reveal plans to task the Australian Competition and Consumer Commission to examine so-called “non-compete clauses” in employment contracts.

Andrew Leigh has tasked the ACCC with looking at the prevalence of non-compete clauses in worker contracts over fears they are driving down wages growth.Credit:Alex Ellinghausen

A non-compete clause effectively prevents a business from poaching workers from a rival firm. In some overseas cases, they can stop a person from working with a rival business for several years, making it virtually impossible for them to shift to a better-paid position in the same industry.

Leigh, an economics professor before entering parliament, will also release Treasury analysis suggesting concentration among businesses across the Australian economy lowered wages by about one per cent through the first half of the 2010s.

Wages growth slowed to record low rates ahead of and during the COVID-19 pandemic, with policy analysts, governments and central banks struggling to understand why it was occurring. The Reserve Bank constantly forecasted a lift in wages growth through the 2010s, but it did not eventuate. Over the past year, wages growth in Australia has lifted to a decade-high rate of 3.3 per cent. But after inflation, wages are falling in real terms at their fastest rate on record.

In a speech in Melbourne, Leigh will argue one of the factors for the wages slowdown has been increased concentration across the jobs market, with workers restricted in their choice of prospective employers.

He will say businesses in markets with few competitors are able to exercise what is described as “monopsony power”. Monopoly power is the ability of one or a small number of businesses to set prices paid by consumers.

A monopsony is where prices are set by the buyer, such as where there are few employers and a large potential workforce.

Leigh will cite evidence from overseas that businesses have used their monopsony power to introduce non-compete clauses in a bid to keep a lid on staff costs while at the same time increasing their own profit margins using their monopoly power.

“Monopsony power has weakened workers’ outside options and bargaining power, made labour markets less competitive and, therefore, lowered workers’ wages,” he will say.

“Workers may get a smaller pay packet because of monopsony power, and then find that when they try to spend it, they get less for their money because of monopoly power.

“It’s a double squeeze.”

There is little information about non-compete clauses within Australia, so the ACCC will examine their competitive impact and whether there is any action the federal government can take to deal with them. Leigh anticipates getting a report back from the ACCC within weeks.

In the US, the Federal Trade Commission is proposing a total ban on non-compete clauses across the entire country over concerns such clauses are in the contracts of up to one in five American workers. The issue has come to a head across the technology sector amid fears the clauses were holding back workers’ wages and innovation.

Leigh will argue the lack of competition for workers in certain industries has contributed to the stagnant wage growth over the past decade. The average weekly full-time wage reached $1808 a week in November last year. In November 2012, the average wage after inflation is taken into account was $1790 a week.

Treasury analysis, yet to be released, shows there has been an impact of up to 1 per cent on Australian wages from 2011 to 2015 because of the concentration of employers in particular sectors.

“For any given level of concentration, its negative impact on wages has more than doubled compared to the mid-2000s,” Leigh will say.

“Because of this – and despite no increase in concentration – employer market power could be a factor that has influenced the slow growth of wages over the last decade.

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