The Three-Friction Labor Market Test
Increase mobility by testing contracts, licenses, and wage-data practices
- Difficulty
- Moderate
- Time to result
- ~months to results
- Steps
- 6
- Confidence
- 96%
This framework tests labor-market competitiveness through three recurring sources of friction: noncompete agreements, occupational licensing, and asymmetric wage-data sharing. First, leaders examine whether employment contracts prevent workers from accepting better offers even when they hold no sensitive information. Second, they review whether licenses protect legitimate safety or competency requirements and whether credentials remain portable across jurisdictions. Third, they assess whether employers possess detailed shared wage intelligence that workers cannot access, potentially weakening wage competition. Restrictions are then eliminated, narrowed, or made portable according to their actual rationale. The intended output is a labor market in which workers can move toward better matches and employers must improve wages or conditions to retain talent, while genuine trade-secret and public-safety protections remain intact.
Origin
Extracted from Masters in Business during Brian Deese's explanation of the administration's three-part labor-market competition agenda.
Core principles
- 01A healthy labor market requires employers to compete for workers.
- 02Workers should be able to accept better jobs unless a narrow legitimate interest prevents it.
- 03Licensing should protect genuine public interests rather than incumbent jobs.
- 04Information asymmetry can weaken wage competition.
- 05Restrictions should be narrowed or removed according to their actual effects.
How to run it
- 1
Audit noncompete coverage
Measure how many workers are bound by noncompetes and segment them by job function, seniority, wage level, and access to sensitive information. Identify restrictions that extend beyond a defensible business interest.
Pro tip Pay special attention to low-wage and entry-level roles.
Watch out Do not assume a restriction is proportionate merely because an employee signed it.
- 2
Test the legitimate interest
For each restriction, identify the precise trade secret, customer interest, or other asset requiring protection. Determine whether a narrower confidentiality or nonsolicitation term would suffice.
Pro tip Require the owner of the restriction to document its mechanism and scope.
Watch out A hypothetical risk is not enough to justify broad limits on mobility.
- 3
Review licensing necessity
Classify occupational requirements by the safety, competency, or consumer-protection outcome they serve. Remove requirements that chiefly make entry harder without producing that outcome.
Pro tip Compare the same occupation across jurisdictions to expose unnecessary variation.
Watch out Do not eliminate evidence-based safety standards along with protectionist requirements.
- 4
Improve credential portability
Create reciprocity, recognition, or accelerated transfer processes for workers moving between jurisdictions. Focus on mobile populations that repeatedly encounter licensing delays.
Pro tip Measure the time between relocation and lawful re-entry into the occupation.
Watch out Nominal reciprocity can still fail if paperwork and processing times remain excessive.
- 5
Inspect wage-data asymmetry
Determine what compensation information employers share or purchase and whether equivalent market information is available to workers. Look for practices that could reduce independent competition over wages.
Pro tip Pair restrictions on collusive data sharing with useful pay transparency.
Watch out Do not confuse legitimate aggregated benchmarking with coordination that suppresses wages.
- 6
Measure labor-market response
Track job switching, time-to-hire, wage growth, and employer retention efforts after changes. Use the results to refine overly broad or ineffective reforms.
Pro tip Compare affected occupations or regions with suitable baselines.
Watch out Short-term turnover may rise before matching and wage benefits become visible.
In the wild
A hospitality group discovers that hourly employees are prohibited from joining nearby competitors despite having no trade secrets. It replaces the noncompete with a narrowly drafted confidentiality clause and trains managers to retain staff through pay, scheduling, and working conditions.
→ Workers can accept better offers, and managers must compete constructively for their talent.
A licensed professional relocates because their spouse receives a military posting. The destination state recognizes an equivalent out-of-state credential and permits immediate provisional practice while verifying documentation.
→ The worker avoids months outside the labor market while competency standards remain in place.
Common mistakes
Treating every employee as a trade-secret risk
Broad noncompetes imposed without regard to role or information access block mobility far beyond what legitimate protection requires.
Confusing licensing volume with safety
A license is justified by the protection it produces, not by how long it has existed or how many jurisdictions require it.
Ignoring information asymmetry
Mobility reform is incomplete when employers possess coordinated compensation intelligence while workers lack comparable visibility.
Is it for you?
Best for
It is best for policymakers, employers, and workforce leaders reviewing structural barriers to job mobility and wage competition.
Not ideal for
It is not ideal for protecting narrowly defined trade secrets where proportionate confidentiality controls already solve the problem.
From the transcript
“our labor market will work more effectively when workers are competing for jobs, but also employers are competing for workers.”
“if particularly if you're operating in those sectors and someone offers you a better job, you should be able to take it.”
“We think we can make some progress by either eliminating or restricting um uh non competes, licensing, uh, you know, wage data sharing”
From the episode
Brian Deese on Unleashing Competition (Podcast)
Brian Deese