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labor Apple and Camp Bow Wow: Sharing Strategies to Keep Wages Low

“Non-competes (agreements) create a Balkanized labor force where you’re not a sandwich maker, but either a Jimmy John’s or Subway sandwich maker. Workers, in other words, are being forced to pledge fealty to companies that can still fire them at will. The payoff, of course, is that workers who, practically-speaking, can’t switch jobs are workers who can’t ask for raises.”

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Matt O’Brien hit the nail on the head in a Wonkblog post about non-compete agreements for doggy day care workers yesterday. Camp Bow Wow, as Dave Jamieson reports, forces new hires to agree not to work for a competing business within 25 miles of their location’s “franchise territory” for two years after leaving the company. Dog sitters obviously don’t learn valuable trade secrets that have to be protected from competitors, so something else is motivating the chain’s non-compete clause—just as trade secrets were not driving Jimmy John’s to restrict where its employees could work when they moved on from the sandwich shop. That motivation is wage suppression. As O’Brien puts it:

“Non-competes create a Balkanized labor force where you’re not a sandwich maker, but either a Jimmy John’s or Subway sandwich maker. Workers, in other words, are being forced to pledge fealty to companies that can still fire them at will. The payoff, of course, is that workers who, practically-speaking, can’t switch jobs are workers who can’t ask for raises.”

It’s common sense that increased experience in an occupation should eventually lead to higher wages and that if, for example, Camp Bow Wow doesn’t sufficiently reward an employee’s experience, some other dog care chain will. The employee might look around and find that experienced dog sitters are paid $1.00 an hour more at Camp Canine. But a non-compete agreement keeps the employee from jumping ship to take the better-paying job. A two-year restriction on competing dog-care employment means the employee has to leave the area to get the benefit of her experience. It’s not slavery, but as O’Brien points out, it’s not the kind of freedom capitalism promises, either. (If the National Right to Work Committee weren’t simply a union-hating sham, it would take up the cause of workers who are being forced to accept such contracts.)

Limiting the right to quit and take another job leaves the employer with ever more bargaining power. How do you negotiate a raise if your employer knows you can’t take your experience and knowledge elsewhere?

O’Brien points out that employers can force workers to accept outrageous contracts like Camp Bow Wow’s and Jimmy Johns’ because the labor market has left workers with such poor choices: agree to a non-compete clause or stay unemployed. Five years after the recession’s official end, 9 million workers are unemployed and another 7 million can’t find full-time work and are working part-time. By the broadest official measure of underemployment, 11.5% of the workforce is underemployed.  On their own, with no union to represent them, low wage workers are easily exploited.

Over the summer, EPI launched our Raising America’s Pay initiative, which is dedicated to calling attention to the problem of Americans’ stagnant wages, and investigating policy solutions. At the heart of the many causes of the past three-and-a-half decades of wage stagnation is workers’ ability to bargain over wages. As O’Brien puts it, “This is about power, pure and simple. Companies have it, and workers don’t.” When workers don’t have power to bargain with their employers—due to high unemployment, weakened unions, and lax labor standards—their wages suffer.

But wage suppression isn’t just for low-wage workers, as recent stories about Steve Jobs remind us. For years, Jobs masterminded a conspiracy to keep some of the premier high tech companies from “poaching” each other’s workers. In other words, Pixar, Adobe Systems, and Google agreed not to recruit or hire Apple’s employees, and Apple agreed not to hire theirs. The Justice Department tried to break up the scheme in 2010, as well as similar agreements among Google, Pixar, and Intel, but subsequent litigation suggests that Apple’s Jobs never gave up.

The amount of money allegedly lost by the high tech employees who were being denied the right to work for their employer’s peer companies is staggering—perhaps as much as $3 billion. In all likelihood, it is more than $324.5 million, since the federal judge trying the case rejected a proposed settlement in that amount as insufficient, and it only covered four of the six companies originally implicated.

But the motives and thinking of these super-powerful high tech companies are really no different from that of Jimmy Johns and Camp Bow Wow. They think they have the right to determine where their employees work if they have the temerity to leave; they think the experience and expertise of their employees belong to the corporation, even if they can’t legally own the employees.

This sense of corporate entitlement—to docile workers, to low wages, to lower and lower taxes, and to deregulation—is a growing threat to middle class Americans and their hope for a better financial future. It’s a problem, from small businesses right to the top of the corporate hierarchy.