Minister says non-compete clauses impact economy

New research from the Federal Treasury and the Reserve Bank has revealed the ‘true cost of reduced competition’ since 2000, with Competition Secretary Andrew Leigh announcing the findings during the Competition Policy for the Modern Economy Conference.

During his address Minister Leigh noted that non-compete clauses that could prevent employees from working for a competitor meant that affected staff earned an average of four per cent less than someone not hindered by such restrictions.

Almost half of Australian workers now have so-called restriction clauses as part of their employment contracts, the report says. According to ABS, these include:

• Not disclosing (45.3 percent)
• Non-compete (20.8%)
• Not making requests from customers (25.4 percent)
• Not making requests from co-workers (18 percent)

The findings, which are important for the early childhood education and care (ECEC) sector, indicate that non-compete clauses are now more common in society and the care sector, with professions such as ECEC, aged care and disability support work now affected by prohibitive clauses. Not taking existing customers with them to a new job, not working in the same industry for a long time, and confidentiality requirements.

In the ECEC context, these items might include things like not being able to work with a rival ECEC service within a certain kilometer radius, not being able to use programming templates or other resources created in a new role, not being able to approach colleagues to leave, etc. The employee resigns to work for a competitor or, after resigning, agrees not to have contact with children or families met through the educator’s work.

The study puts the estimated cost of reduced competition since 2000 at between 1 and 3 percent, or about $25 billion to $75 billion, or $2,500 to $7,500 per household.

The Minister said ECEC’s GP clinics, aged care services and dental practices were singled out as the ‘next competitive battlegrounds’ in the report.

“When taken across the workforce and taking into account the fact that one in five workers is subject to a non-compete clause, this means that non-competes reduce average wages by more than $500 each year – the equivalent of $7 billion annually.” he continued.

The government has created a competition task force that examines nearly all aspects of the economy. Minister Leigh announced that this task force was investigating ‘competition hotspots’ together with the Australian Competition and Consumer Commission (ACCC).

ECEC, along with aged care, dental care and general practitioners, were identified by the Minister as parts of the economy where anti-competitive pressures are increasing. Aged care and ECEC, he continued, are “two of the fastest growing parts of the economy”, with government funding supporting new services and higher wages to attract and retain staff. These are also areas where productivity growth is low.

Of the nearly 400,000 jobs created last year, 216,000 were in the education or health sectors, including aged care, the National Disability Insurance Service and ECEC.

To access the Minister’s statements please look here.