New firm formation has struggled to recover to pre-recession levels. Legacy firms, which are the most profitable, are consolidating profits. Industries that used to be represented by tens of firms have shrunk to just a handful.
Policymakers must protect equality of opportunity, not preserve a firm's market power. There are three main areas in which competition should be restored:
1. Labor Markets — A competitive and fluid labor market allows entrepreneurs to allocate worker skills in the most productive way. Yet, workers are not switching jobs as frequently, reducing labor-market dynamism, and preventing workers from finding the jobs where their skills would be most highly-valued.
a. Non-compete clauses, which forbid would-be entrepreneurs from founding a business that competes with their employer, perpetuate this lack of new business formation.
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