Measurement of Market Concentration Faced by Labor Pools: Theory and Evidence From Fast Food Chains in Rhode Island With No-Poaching Clauses

No-poaching clauses in franchise agreements recently have attracted widespread attention from the press, state Attorneys General, private litigations, and Congress. The concern is that franchise no-poaching clauses may increase monopsony power by increasing the share of jobs that individual employers control. Fundamental empirical support for these investigations and legal claims is based on important assumptions and limited empirical research. This paper challenges fundamental assumptions in previous research, demonstrating that those claims of the highly concentrating effects of franchise no-poaching clauses are invalid. This paper also demonstrates the need for a new type of concentration measure for market arrangements and contractual terms like franchise no-poaching clauses that produce differences in effective concentration across suppliers within the same geographic and product market.

By Daniel Levy, TimTardiff¹

I. INTRODUCTION

There has been significant recent interest in no-poaching clauses of franchise agreements, in the press,² the courts,³ enforcement agencies,⁴ and the U.S. Congress.⁵ These no-poaching clauses restrict an owner of a franchise (“franchisee”) from hiring employees from another franchisee within the same brand. There is no restriction against hiring across franchise brands.

Franchise owners may have an incentive to hire experienced/ trained employees from other franchise locations, rather than train them, because the franchise rest