NON DISCLOSURE AGREEMENTS

75 percent of US firms currently make use of non-disclosure agreements. Originally developed to protect trade secrets, today’s agreements have expanded to include information on salaries, skills, client lists, and employment practices.

In a 2019 research paper, legal scholar ORLY LOBEL considers the impact of restrictive clauses on worker mobility, diversity, and inequality.

From the paper:

“In his seminal work Exit, Voice, and Loyalty, political economist Albert Hirschman proposed an interplay between the three concepts. When an organization breaks down, individuals can effect change by either leaving or by working from within to right the wrongs. Loyalty, Hirschman argued, moderates the choice between exit and voice. In corporate settings, employees regularly experience discontent and must decide what form of action to take. But what happens when both exit and voice are restricted?

In today’s labor markets, non-disclosure agreements (NDAs), non-compete agreements, innovation assignment clauses, non-disparagement agreements, mandatory arbitration, and secrecy policies all create exit and voice constraints. Recently, a steep rise in these clauses has shaped human capital in ways that are harmful to all workers as well as to industries at large. Regardless of enforceability, NDAs are routinely expansive and used to signal to employees that a range of knowledge, information, and speech is off-limits. In particular, salary as proprietary information shows the connections between market competition, secrecy, and inequality: if women and minorities are in the dark about their undervalued talent, they are less likely to seek exit or to speak up to be equally compensated for their performance. Another such example is information pertaining to diversity. In recent years, major companies have claimed that their diversity information is a trade secret—in 2018 Microsoft filed a lawsuit against its Chief Diversity Officer, claiming that the employee had knowledge on how to achieve more inclusion. In another case, IBM alleged that the executive held trade secrets which include diversity data and strategies. When corporate contracts, practices, and culture limit employees’ ability to advocate organizational change, the many shades of inequality and status quo are sustained.”

Link to the piece.

• “From event planners to chefs to investment fund managers to yoga instructors, employees are increasingly required to sign agreements that prohibit them from working for a company’s rivals.” In the NYT, Steven Greenhouse reports on the proliferation of non-competes among low wage workers. Link. And in a related article, Neil Irwin investigates restrictive agreements for minimum wage workers at sandwich company Jimmy John’s. Link.
• In a paper from 2014, Randall Thomas, Norman Bishara, and Kenneth Martin analyze postemployment restrictions in 500 S&P 1500 companies. Link.
• “Broad use of NDAs facilitates equilibria where firms with worse employment practices can ‘pool’ reputations among firms with better practices.” Jason Sockin, Aaron Sojourner, and Evan Starr on NDAs and information flows. Link.

NEW RESEARCHERS

Market Concentration and Productivity Slowdown

Visiting scholar at the Minneapolis Fed’s Opportunity & Inclusive Growth Institute and recent graduate from Northwestern JANE OLMSTEAD-RUMSEY studies firm dynamics, labor markets, and growth. In her job market paper, Olmstead-Rumsey looks at the connection between market concentration, innovation, and sluggish productivity growth.

From the abstract:

“Since around 2000, U.S. aggregate productivity growth has slowed and product market concentration has risen. I construct a measure of innovativeness based on patent data that is comparable across firms and over time and show that small firms make more incremental innovations in the 2000s compared to the 1990s. To understand the implications of this fact for firm dynamics and growth, I develop an endogenous growth model where the quality of new ideas is heterogeneous across firms. I use a quantitative version of the model to infer changes to the structure of the U.S. economy between the in 1990s and the 2000s. This analysis suggests that declining innovativeness of market laggards can account for about forty percent of the rise in market concentration over this period and the entire productivity slowdown. Changes in firms’ R&D investment policies in response to the decreased likelihood of laggards making drastic improvements amplify the productivity slowdown.”

Link to the paper, link to Olmstead-Ramsey’s website.

Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations: editorial@jainfamilyinstitute.org.

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• “Understanding the construction industry can help us move beyond a mechanical image of ‘labor shortages’—too much demand, too few unemployed—toward a richer understanding of the institutions that reproduce the labor force and determine its compensation.” New on the site, Andrew Yamakawa Elrod on what the history of the construction industry tells us about skills gaps and labor shortages. Link.
• “The report has made clear that the climate in which the US became a superpower no longer exists. Why are politicians stuck on twentieth-century answers to the twenty-first century’s problems?” Kate Aronoff on the IPCC report and climate policy. Link.
• An interactive atlas for exploring the observed and projected climate information underpinning the latest IPCC report. Link. Read the policymaker summary of the report here, and see a collection of all the figures here.
• “Counting carbon: historic emissions from fossil fuels, long-run measures of sustainable development and carbon debt.” By Jan Kunnas, Eoin McLaughlin, Nick Hanley, David Greasley, Les Oxley, and Paul Warde. Link.
• A thread from Daniela Gabor on the political economy of infrastructure. Link.
• “We should not mince words: if this is the stance of the Biden administration then its decarbonisation agenda has been well and truly buried.” Adam Tooze on the Biden Administration’s move to pressure OPEC+ to boost production. Link. And Tooze on the EU-US divide in climate policy. Link.
• A paper by Jan Stockbruegger looks at the International Maritime Organization’s failure to regulate shipping emmissions. Link. And link to a summary post at Monkey Cage.
• Lenore Palladino and Chirag Lala on the evolution of asset management and the case for a public asset manager. Link.
• “Inflation, right at this moment, is exactly two things. We’re seeing a big increase in the price of fossil fuels. That’s one. And two, we’re seeing an increase in the price of automobiles. And that’s it. That is 100 percent of what we are calling inflation today.” Link. Eric Levitz interviews JW Mason on the inflation debate. (And, linked last week, Mason’s essay on the subject.)
• Dani Rodrik on trade and inequality. Link.
• “This article analyzes a newly constructed individual level dataset of every English death and probate from 1892–1992. This analysis shows that the twentieth century’s “Great Equalization” of wealth stalled in mid-century. The probate rate, which captures the proportion of English holding any significant wealth at death rose from 10 percent in the 1890s to 40 percent by 1950 and has stagnated to 1992. Despite the large declines in the wealth share of the top 1 percent, from 73 to 20 percent, the median English individual died with almost nothing throughout. All changes in inequality after 1950 involve a reshuffling of wealth within the top 30 percent. I translate the individual level data to synthetic households; the majority have at least one member probated. Yet the bottom 60 percent of households hold only 12 percent of all wealth, at their peak wealth-holding level, in the early 1990s.” By Neil Cummins. Link.

Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations: editorial@jainfamilyinstitute.org