Locked In? The Enforceability of Covenants Not to Compete and the Careers of High-Tech Workers

Abstract

We study the relationship between the enforceability of covenants not to compete (CNCs) and employee mobility and wages. We exploit a 2015 CNC ban for technology workers in Hawaii and find that this ban increased mobility by 11% and new-hire wages by 4%. We supplement the Hawaii evaluation with a cross-state analysis using matched employer-employee data. We find that technology workers starting a job in an average-enforceability state have about 8% fewer jobs and 4.6% lower cumulative earnings relative to equivalent workers starting in a non-enforcing state, after eight years. These results are consistent with CNC enforceability increasing monopsony power.

Keywords: Covenants Not to Compete, Wages, Mobility, Monopsony

JEL Classification: J62, J68, J31