Noncompetes in the U.S. Labor Force

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Citation: Evan P Starr, Norman Bishara, J.J. Prescott (2016/08/29) Noncompetes in the U.S. Labor Force.
Internet Archive Scholar (search for fulltext): Noncompetes in the U.S. Labor Force
Download: https://ssrn.com/abstract=2625714
Tagged: noncompete (RSS), survey (RSS)

Summary

Following up on The Incomplete Noncompete Picture, using data from a nationally (U.S.) representative survey authors "show that noncompetes are a common part of the employment relationship: 38.1% of employees have signed a noncompete at some point in their lives, while 18.1% of those in the U.S. labor force are presently working under a noncompetition agreement, indicating that roughly 28 million labor force participants are currently subject to a noncompete."

Key findings:

  • "noncompetes are more likely to be found in high skill, high paying jobs that involve trade secrets, but they are still prevalent in low skill, low paying jobs that do not involve trade secrets."
  • "less than 10% of noncompete signers negotiate over the contract, nearly 1/3 of all noncompetes are implemented after the employee has accepted the job, and supply side charac- teristics, such as how long an employee expects to work for a firm, are not strongly correlated with the use of noncompetes"
  • "noncompetes increase the wage required for competitors to successfully poach the employee, leading to 8% longer tenures and a 178% reduction in the (perceived) likelihood of moving to a competitor relative to a noncompetitor"
  • "noncompetes are associated with a 5 percentage point increase in the likelihood of receiving training, and a 6.6% increase in hourly wages, which comes primarily from wage growth over tenure, as opposed to higher starting wages"
  • "for the average labor force participant, the enforceability of the noncompete is not strongly related to the use of noncompetes, and does not strongly moderate the relationship between the noncompete and labor market outcomes"

Contributions:

  • "first set of facts re- garding the use of noncompetes and labor market outcomes associated with their use"
  • "identify that noncompetes are just as common in nonenforcing states as they are in high enforcing states, and that, for the average employee, en- forceability does not significantly moderate the effect of the noncompete itself" ... suggesting that use of contract is operative variable and what policymakers may want to target directly, rather than banning/restricting enforcement
  • "empirically identify the particular role of contractual restrictions on employee mobility as a tool to spur investment in human capital and, likely, productivity"
  • "though we have no variation in the use of noncompetes over time, this study points towards a potential relationship between the decline in US Dynamism and the use of noncompetes"


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