I see that the FTC banned it and (from what I see) it seems like a good thing. Why?
In: Economics
Lots of people have explained why they’re bad in high-skilled industries (they’re anticompetitive and limit the proper distribution of skilled laborers), but no one has explained where they might be good.
say you get hired to assemble bicycles as a contractor at walmart, where you get a 66% commission – so say walmart pays your company $15 to assemble the bicycle , and then you get $10 (which takes about 10-15 minutes by the way, as long as you don’t suck – i made bank at that job. It ended up being around $41/hour).
Once you finish training, both you and the person that you’re helping would be better off if they just hired you directly for 80% of that cost – so they pay you, directly, $12.50 to assemble the bicycle. They save $2.50 a bike and you earn an extra $2.50 a bike. Obviously both of you lose out on the company infrastructure (additional workers that can come in for busy times, support if things go wrong, liability insurance, etc.), but the savings are enough to make it worthwhile and you’re in the ass-end of nowhere and as such are the only person from the company that ever goes to that store anyway, so the support is a bit lacking regardless.
So obviously the company needs to stop you from just starting your own bike assembly business as soon as you’re done training and then directly competing with them and servicing their (now your) clients, so when you get hired you have to sign a noncompete agreement at the company promising that you won’t assemble bicycles for any other company for 2 years after the start of your employment. Now they know that in exchange for training you they will get at least 2 years of employment out of you. This means they are more willing to hire and train new workers, since they don’t need to worry about paying someone just to have them immediately leave and then undercut them as soon as their training is done.
Obviously this only makes sense in industries that are low-skilled labor and don’t require much in the way of capital, but do require someone to walk you through everything. Things like simple car or bike maintenance, house painting, powerwashing, yard work/landscaping, etc.
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However there is a better way – training/retention bonuses! Instead of offering paid training, the employer can give unpaid training along with a training bonus, with language that revokes that training bonus (requiring the employee to pay it back) if they leave before a certain time after training, and then provide a retention bonus for staying with the company for extra duration.
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