Noncompete Agreements in the U.S. Labor Force

Abstract

Using nationally representative survey data on 11,505 labor force participants in 2014, we examine the use, implementation, and labor market outcomes associated with noncompete agreements. Nearly 1 in 5 labor force participants are bound by noncompetes, and nearly 40% have agreed to at least one noncompete in the past. Noncompetes are more likely to be found in high-skill, high-paying jobs, but they are also common in low-skill, low-paying jobs as well as in states that do not enforce such provisions. Only around 10% of employees negotiate over their noncompetes, and roughly one-third of employees are presented with their noncompetes after accepting their job offers (without a raise or promotion). Early-notice noncompetes are associated with better employee outcomes, while employees who agree to late-notice noncompetes are relatively worse off, though wages are relatively lower where noncompetes are easier for employers to enforce for both early and late notice. These findings are discussed in light of competing theories of the value of noncompetes.

Keywords: covenants not to compete, employment law, transpareny

JEL Classification: J4, J6, K31, L41, M5