Consider This: Training, Wages, and the Enforceability of Covenants Not to Compete

Forthcoming at Industrial and Labor Relations Review

54 Pages Posted: 29 Jan 2015 Last revised: 26 Jul 2018

Evan Starr

University of Maryland Robert H Smith School of Business

Date Written: May 24, 2018

Abstract

This study examines the effect of noncompete enforceability on training and wages. An increase from non-enforcement to mean enforceability is associated with a 14% increase in training, which tends to be firm-sponsored and designed to upgrade or teach new skills. In contrast to theoretical expectations, the results show no evidence of a relationship between noncompete enforceability and self-sponsored training. Despite the increases in training, an increase from non-enforcement to mean enforceability is associated with a 4% decrease in hourly wages. Consistent with reduced bargaining power, noncompete enforceability is associated with a reduction in the return to tenure, and less educated workers experience additional wage losses in the face of increased enforceability relative to more educated workers. Suggestive evidence indicates that consideration policies exhibit differential effects relative to other types of noncompete policies.

Keywords: Training, Wages, Employee Mobility, Covenants Not to Compete

JEL Classification: J3, J4, J6, K3, L41, M53

Suggested Citation

Starr, Evan, Consider This: Training, Wages, and the Enforceability of Covenants Not to Compete (May 24, 2018). Forthcoming at Industrial and Labor Relations Review. Available at SSRN: https://ssrn.com/abstract=2556669 or http://dx.doi.org/10.2139/ssrn.2556669

Evan Starr (Contact Author)

University of Maryland Robert H Smith School of Business ( email )

United States
(301) 405-2320 (Phone)

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