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 signed at least one in the past. Noncompetes are more likely to be found in high-skill, high-paying jobs, but they are also surprisingly common in low-skill, low-paying jobs. We document that less than 10% of employees negotiate over noncompetes, that roughly one-third of noncompetes are signed after accepting the job offer, and that nearly two-thirds of job applicants had no alternative job opportunities when they were asked to agree to a noncompete. Differences in the competitive circumstances under which noncompetes are signed are associated with starkly different outcomes for employees: those presented with a noncompete before they accept a job offer and those who have alternative employment options earn 19% higher wages, receive 14% more training, and are 13% more satisfied in their job than those not bound by noncompetes. However, those asked to sign after accepting an offer and/or without other employment options are 15% less satisfied in their job and experience no wage and training benefits. In contrast to the existing literature, we find little role for the enforceability of noncompetes in explaining their use and their association with wages and training.

Keywords: covenants not to compete, monopsony power, employment law, contracts, wages, training

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