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The Federal Trade Commission recently issued a new rule that may void non-compete clauses for American workers, sparking a debate about the potential economic impact. Advocates believe that eliminating such clauses could boost the economy and lead to higher wages, while critics argue that it may hinder investment.

Non-compete clauses have a long history, dating back to Europe in the 1400s. Initially, courts sided with apprentices seeking to escape restrictive agreements with their mentors. However, during the Industrial Revolution, views shifted in favor of companies looking to protect their trade secrets and investments. Research has shown that when non-compete clauses are easier to enforce, firms tend to increase physical investments significantly.

Despite the potential benefits for businesses, there have been instances of abuse, with some companies imposing harsh restrictions on employees, including those in low-wage positions. Studies have found that about 10% of minimum wage workers are subject to non-compete agreements, limiting their job mobility and earning potential.

The ban on non-compete clauses by the FTC is expected to have a positive impact on the economy, with projections suggesting an increase in business creation and higher earnings for workers. However, the legality of the ban is being challenged by the US Chamber of Commerce, raising questions about the FTC’s authority to regulate such agreements.