Noncompetes in the U.S. Labor Force

82 Pages Posted: 3 Jul 2015 Last revised: 25 Mar 2020

See all articles by Evan Starr

Evan Starr

University of Maryland Robert H Smith School of Business

J.J. Prescott

University of Michigan Law School

Norman Bishara

The Stephen M. Ross School of Business at the University of Michigan

Date Written: March 25, 2020

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 and enter into their noncompetes in the immediate aftermath of accepting their job offers. Employees who agree to noncompetes under transparent contracting conditions (i.e., with early notice) appear to be better off than those without noncompetes, while late-notice noncompete signers are relatively worse off. However, diagnostic tests suggest the positive early-notice wage estimates may be susceptible to selection on unobservables, a concern also reflected in the fact that the wage premium for employees with noncompetes is lower where noncompetes are easier for employers to enforce (for both early and late notice).

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

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

Suggested Citation

Starr, Evan and Prescott, J.J. and Bishara, Norman D, Noncompetes in the U.S. Labor Force (March 25, 2020). U of Michigan Law & Econ Research Paper No. 18-013. Available at SSRN: https://ssrn.com/abstract=2625714 or http://dx.doi.org/10.2139/ssrn.2625714

Evan Starr

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

United States
(301) 405-2320 (Phone)

J.J. Prescott (Contact Author)

University of Michigan Law School ( email )

3170 South Hall
701 S. State St.
Ann Arbor, MI 48109
United States
734-763-2326 (Phone)

Norman D Bishara

The Stephen M. Ross School of Business at the University of Michigan ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-647-6823 (Phone)

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