Collective bargaining and monopsony: The regulation of noncompete agreements in France

Abstract

Can collective bargaining mitigate monopsony power? This paper addresses this question by examining how the regulation of noncompete agreements for employees by collective agreements affects firm-level markdowns in the French manufacturing sector. Using a staggered difference-in-differences approach, we find that the regulation of noncompetes set by collective agreements leads to a 1.3%–2.2% reduction in markdowns on average. The effect grows over time and is more pronounced for smaller, less productive firms that pay lower wages. Studying a landmark decision of the French Supreme Court that introduced the obligation to have a compensation to consider a noncompete enforceable, we find a significant complementarity between the regulation of noncompetes at the national level (e.g., via case law) and sectoral collective bargaining. By enhancing compliance or imposing further restrictions, collective bargaining can therefore serve as an effective tool to regulate the use of noncompete agreements.