Innovation through Inventor Mobility: Evidence from Non-Compete Agreements

Abstract

Proponents of labor mobility restrictions argue that innovation incentives more than offset harm to workers. Yet the causal effect of such policies on innovation is an open empirical question. Leveraging plausibly exogenous state-level changes in the enforceability of non-compete agreements, we find a significant negative effect on innovation. This effect is even larger for the most novel and innovative patents and firms. Further analysis shows that these negative effects on innovation cannot be explained by entry alone and instead likely result from reduced knowledge flows. Our findings suggest that labor mobility plays a crucial role in spreading knowledge across firms.

Keywords: Non-Compete Agreements, Innovation, Labor Mobility, Knowledge Diffusion

JEL Classification: O31, O33, J21, E24, K31