Noncompetes in the U.S. Labor Force

Abstract

Using nationally representative survey data on 11,505 labor force participants, we examine the use, implementation, and effects of noncompete agreements. Nearly 1 in 5 labor force participants were bound by noncompetes in 2014, and nearly 40% had ever signed one. Noncompetes are more likely to be found in high skill, high paying jobs, but that they are also prevalent in low skill, low paying jobs. We document that negotiation over noncompetes is rare, that firms regularly delay the offering of the noncompete until after the employee has accepted the job, and that workers often do not have alternative employment opportunities when asked to sign. Differences in the circumstances under which noncompetes are signed are associated with starkly different outcomes: those asked to sign with the job offer and who have alternative employment options earn 16% higher wages, receive more training, and are more satisfied with their job than those not bound by noncompetes. However, those who were asked to sign after accepting the job and who did not have other employment options are less satisfied and experience none of the wage and training benefits. In contrast to the existing literature, we find relatively little role for the enforceability of the noncompete in determining both where noncompetes are used and the strength of the relationship between a noncompete and wages and training.

Keywords: noncompetes, non-competition agreements, covenants not to compete, employment law, contracts, cove