CMA research report on competition and market power in UK labour market

Report, conducted by the CMA’s Microeconomics Unit, offers insight into competition in the UK labour market to support wider policy thinking

Research finds labour market concentration roughly the same as 20 years ago

Around 30% of employees impacted by non-compete clauses

Findings support CMA focus on tackling anti-competitive wage-fixing and no-poach agreements between employers

The report by the Competition and Markets Authority (CMA) Microeconomics Unit takes a deep dive into trends in the UK labour market, focusing on the impact of competition and employer market power. It seeks to provide insight and evidence to inform not only the CMA’s work, but also wider government and policy thinking.

Labour markets will continue to form a key part of the CMA’s focus, as outlined in its 2023 to 2024 Annual Plan. As part of its cartel enforcement work, the CMA is already looking into suspected anti-competitive conduct in relation to rates for workers in the sports and non-sports TV production and broadcasting sectors. It also recently broadened its investigation into the fragrances industry to cover suspected unlawful ‘no poaching’ arrangements.

Today’s report is the first major research issued by the CMA’s Microeconomics Unit. Established in 2022, the unit seeks to further strengthen the CMA’s analytical capabilities and to act as a collaborative centre of research expertise for government as a whole.

The report will be accompanied by a speech from CMA Chief Executive Sarah Cardell, and delivered at Durham University, during which she will unpack the findings of this important research, including:

• Labour market concentration in the UK is roughly the same as 20 years ago: Labour market concentration measures how many employers operate in a particular market – the fewer firms, the more concentrated it is, providing an indicator of labour market power. The CMA considered labour market concentration in the UK over a 20-year period finding that levels remained roughly constant, despite fluctuations over time. This means the ratio between the number of workers and the number of employers has remained largely consistent. This is in stark contrast to the US, where there is a substantial body of research showing that labour market power in US labour markets has been increasing over time.

• Concentration varies according to region and industry: The report shows that labour markets outside of London and the Southeast are more concentrated, i.e. there are more employers per person in these two areas. Blue-collar professions like care workers and tradespeople have seen concentration in their sectors fall, while concentration has remained steady for white-collar workers, like managerial staff and IT professionals. For affected workers, concentrated labour markets have a very real impact – wages, on average, are 10% lower in the most concentrated markets, compared to the least.

• Share of income workers receive compared to their input has been rising slightly in most of the UK: Across the economy, the share of income workers receive has risen slightly to around two thirds of their contribution to revenues. Consistent with other academic research in this area, the report finds that where there is labour market power, workers receive less than the full value of their contribution to revenue. This is true for workers in any major economy.

• ‘Non-compete’ clauses impact around 30% of UK workers: Non-compete clauses stop employees from working at a competitor firm for a set amount of time after their employment ends. Such clauses impact around 30% of workers – with this percentage increasing to over 40% in ICT and professional and scientific services. The report finds that non-competes are prevalent across the UK economy, even in sectors where one would not expect firms to need to protect their intellectual property – in retail, education, and food services, for example, around 20% of workers have non-compete clauses in their contracts.

• Number of firms offering hybrid working has increased dramatically in recent years: Since the pandemic, the number of jobs offering remote and hybrid working has increased significantly and stabilised at around 20% of UK roles. Hybrid jobs are more common in geographical areas with lower concentration – such as London – and are associated with a rise in wages. Hybrid working can impact the employer-employee power dynamic, as it can widen a person’s potential job pool.

Sarah Cardell said about today’s report:

This report adds to the robust body of evidence to support the benefits of well-functioning labour markets, widely recognised as an important driver of economic growth. Where labour markets work well, workers are able to access the right jobs for them, and firms can find the workers they need in the easiest, most efficient way.

It will provide helpful insights to inform thinking across the academic and policymaking community, at a time when we are all seeking ways to stimulate our economy and make people better off. The CMA will also use the findings to inform our own work to combat anti-competitive conduct in labour markets, including our ongoing investigations into suspected anti-competitive agreements between employers.

The report and speech can be found here: Competition and market power in UK labour markets.

Notes to editors

1. The Microeconomics Unit (part of the CMA) was established in 2022 and is located in Darlington. It conducts economic research focusing on issues of competition, innovation, and productivity to support growth in the UK economy. The role of the unit is to provide expertise and ensure the CMA and wider government, remains informed of emerging economic issues; helping people, businesses, and the UK economy by promoting competitive markets and tackling unfair behaviour. The unit was set up following the UK government-commissioned 2021 Penrose report on competition policy.
2. The CMA’s cartel investigations regarding sports and non-sports TV production and broadcasting sectors, and the fragrances industry are ongoing. No assumption should be made at this stage that the CA98 has been infringed. The CMA has not reached a view as to whether there is sufficient evidence of an infringement of competition law for it to issue a statement of objections to any of the parties under investigation. Not all cases result in the CMA issuing a statement of objections.
3. The labour market refers to the supply and demand of labour – with employees providing the supply and employers providing the demand.
4. Labour market concentration measures how many firms exist within a specific market – the fewer firms within a specific labour market, the more concentrated it is.
5. Employer market power is the ability of a company to pay its workers less than the value of their contribution to the firm’s output.
6. Employee market power represents the ability of employees to demand a larger wage for their input, for instance through collective bargaining.
7. The ‘wage markdown’ measures the difference between the contribution of a worker to a firm’s revenue and the wage they are paid: a higher markdown, i.e. a bigger difference between revenue contribution and wage, is therefore suggestive of the employer having more market power in the labour market.