The authors discuss how failing to account for the incentives and benefits that arise within long-term employee-employer relationships can lead to incomplete and incorrect economic analysis.
Courts and agencies are engaging deeply in antitrust analysis of labor-market restraints. In this article, authors Justin McCrary of Columbia University and Bryan Ricchetti of Cornerstone Research discuss a defining feature of that analysis—a feature that differentiates it from antitrust analysis of product-market restraints: the employee-employer relationship. Labor economists widely recognize that investments from each side of the employee-employer relationship can enhance the value of the relationship. In that context, both parties generally lose when the relationship ends. This means that contractual restraints that protect the relationship can be economically rational for both parties and can make both parties better off.
The authors also discuss how incentives for both workers and firms to invest in a long-run relationship, and the vertical aspects of the relationship, have important implications for three antitrust topics of interest in labor markets today: non-compete clauses, no-poach agreements, and empirical analysis of labor-market power.
This article was originally published by ABA Antitrust Magazine in June 2023.