DP19548 No–Poaching Clauses in Franchise Contracts: Anticompetitive or Efficiency Enhancing?
No-poaching clauses (NPCs) have recently come under scrutiny due to their potentially anti-competitive impact on wages. However they can also enhance efficiency. We use data from the US chain restaurant industry to assess the effect that such clauses have on wages and we find robust evidence of a negative impact. Specifically, the legal cases, proposed legislation, and negative attention surrounding NPCs, which led many chains to remove such clauses from their contracts, caused wages in those chains to rise by about 5% relative to chains that did not have NPCs. We show that the impact of removal is greater for franchisors with larger shares of the job ad market, which is a measure of the job opportunities that are denied to their employees under NPCs. We also find that the effect of the clauses on the wages of managers is not statistically different from the effect on the wages of workers. We attribute these wage effects to the removal of frictions and barriers to labor mobility.
