Vertical Restraints and Labor Markets in Franchised Industries

The Effect of Franchise No-Poaching Restrictions on Worker Earnings

“…7 As mentioned in Section 1, Krueger and Ashenfelter (2017) found that 58% of franchising contracts contained nopoach clauses restraining franchisees from hiring workers currently or recently employed by franchisees (or the franchisor) in the same chain prior to the Washington AG's enforcement. We find similar prevalence: 59.2% of the chains in our data (530 chains versus the 158 in Krueger and Ashenfelter (2017)), corresponding to 60.1% of the job ads posted by those chains (Callaci et al, 2023). Krueger and Ashenfelter (2022) propose two different (but related) mechanisms whereby franchise no-poach provisions would diminish labor market competition, shifting market power to employers.…”

“…The criteria for inclusion are that the chains had to have at least 80 locations nationally, and had to have filed their FDD in Wisconsin, indicating at least some presence in that state. SeeCallaci (2021b) andCallaci et al (2023) for further details on the FDD data.7 This could be regarded as an outgrowth of the overall paradigm shift in labor economics described byCard (2022), since previously the maintained assumption was that the vast majority of labor markets are highly or even perfectly competitive, particularly for low-wage workers.…”