Competition and Market Authority Reports

Employers' market power is being affected by the rise of hybrid working and the gig economy, the increased use of performance-related pay, and the abuse of non-compete clauses. A new government report details how the labor market is responding.

The UK Competition and Markets Authority (CMA) has published its flagship report 'Competition and market power in the UK labor market', which takes a 'deep dive' into the key trends in the UK labor market and focuses on the impact of competition and employer market power. “announced. .

The report highlights the importance of well-functioning labor markets for productivity. As her CEO at the CMA, Sarah Cardel, has said, boosting economic growth remains a key priority for the government. He acknowledged that there will always be frictions in the labor market and stressed that this is an area where competition authorities have traditionally been less active, but said the CMA has the ability to compete by fixing wages. He pointed out that he has the authority to take enforcement action against companies that violate the law.

Many aspects of the report will be of interest to employers.

Concentration and market power

This report considers the impact of concentration and market power on the UK labor market.

• Labor market concentration measures how concentrated employment in each labor market is in the hands of employers. High concentration means that a small number of employers have a large share of the market.
• Employer market power is the ability of a company to pay employees less than the value of their contribution to the company's output.
• A highly concentrated labor market gives employers access to a wider pool of talent, which, combined with the time and cost of job searches, can deter employees from leaving their jobs.
• Four trends changing the nature of work can impact employers' market power. (i) Hybrid Work. (ii) the rise of the gig economy; (iii) Use of Non-Compete Terms. (iv) Changes in approach to salary setting.

Main findings

collective bargaining

• In highly concentrated labor markets, employees earn, on average, 10% less. The negative relationship between concentrated labor markets and wages disappears when employees participate in collective bargaining agreements.
• Manufacturing, transportation and storage, and financial services have particularly concentrated labor markets. In financial services, collective bargaining arrangements generally do not exist.
• Labor union membership is declining. Currently, just over 20% of his employees are unionized and approximately 30% are covered by collective bargaining agreements.
• The potential relevance of employer associations to employer market power is not addressed in the report.

Performance-based salary

• Standardized salary settings are being phased out in favor of merit pay and performance pay.
• Companies with performance-based pay policies tend to have higher salaries.
• Performance pay increases wage inequality within a firm, but this is offset by the presence of collective bargaining.

hybrid operation

• Hybrid working is now commonplace (20% of job openings are now remote or hybrid) and is changing the landscape of the labor market, including opening up job opportunities in rural areas.
• The impact of hybrid working on wages is “ambiguous.” It remains to be seen whether it will increase or decrease employee productivity levels, and whether it will widen or narrow the pool of employees applying for roles. Workers appreciate the benefits of hybrid working and are willing to take pay cuts of up to 10% to spend part of their time working remotely.

gig economy

• The gig economy has grown in recent years, but it only accounts for 3% to 5% of jobs in the UK.
• Gig workers earn the same amount as traditional workers, but they often work long hours and work multiple jobs.
• Low-paying jobs are common in the gig economy.

Non-compete clauses in employment contracts

• •Approximately 26% of employees are subject to non-compete clauses. These provisions are generally more common in managerial and scientific occupations.
• Non-competes are distinguished from non-poaching agreements. Non-competes generally do not violate competition law and are usually an employment law issue.
• The report notes that the government intends to legislate to limit the length of non-compete clauses in employment contracts to three months. “Our evidence supports this direction,” Sarah Cardel said in a speech announcing her report.

This report speaks to the CMA's intention to address anti-competitive conduct that it believes has a direct impact on household incomes.

The regulator's message to employers is clear. Regulators are focused on improving labor market conditions to support broader economic growth, and companies are required to comply with their obligations under competition law with respect to employment practices, and competitive labor Markets benefit the broader economy.

This report is a reminder of the importance of keeping information about employment details confidential in external consultations with employer organizations and in other situations such as M&A activities.

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