Working Paper: NBER ID: w31929
Authors: Matthew S. Johnson; Kurt J. Lavetti; Michael Lipsitz
Abstract: We analyze how the legal enforceability of noncompete agreements (NCAs) affects labor markets. Using newly-constructed panel data, we find that higher NCA enforceability diminishes workers’ earnings and job mobility, with larger effects among workers most likely to sign NCAs. These effects are far-reaching: changes in enforceability impose externalities on workers across state borders, suggesting that enforceability broadly affects labor market dynamism. We provide evidence that NCA enforceability primarily affects wages through its effect on workers' outside options; moreover, workers facing high enforceability are unable to leverage tight labor markets to increase earnings. We motivate these findings by embedding NCA enforceability in a search model with bargaining. Finally, higher NCA enforceability exacerbates gender and racial earnings gaps.
Keywords: No keywords provided
JEL Codes: J08; J31; J38; J61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher NCA enforceability (K29) | Diminished workers' earnings (J31) |
| Higher NCA enforceability (K29) | Reduced job mobility (J62) |
| Making NCAs unenforceable nationwide (L49) | Increase in average earnings (J31) |
| Higher NCA enforceability (K29) | Declines in implied hourly wages (J39) |
| Stricter enforceability (P14) | Reduced job offer arrival rates for all workers (J79) |
| Higher NCA enforceability (K29) | Negative effects on earnings of workers not bound by NCAs (J39) |
| Higher NCA enforceability (K29) | Greater barriers to mobility for women and non-white workers (J79) |