Noncompetes in the U.S. Labor Force

51 Pages Posted: 3 Jul 2015 Last revised: 30 Aug 2016

Evan P Starr

University of Maryland Robert H Smith School of Business

Norman Bishara

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

J.J. Prescott

University of Michigan Law School

Date Written: August 29, 2016

Abstract

As typically unobserved features of the employment relationship, the role that covenants not to compete play in shaping economic dynamics is intrinsically difficult to grasp. Using nationally representative survey data on 11,505 labor force participants, we characterize the use of noncompetes by employer and employee characteristics and document the labor market effects with which they are associated. We find that noncompetes are more likely to be found in high skill, high paying occupations, but that they are also prevalent in low skill, low paying occupations. We document that negotiation over noncompetes is rare and that firms regularly delay the offering of the noncompete until after the employee has accepted the job. In the cross-section, noncompetes are associated with both increased retention and redirection from competitors, as well as a greater likelihood of receiving training and higher wages. We find little role for the enforceability of the noncompete both in determining where noncompetes are used and the strength of the relationship between a noncompete and labor market outcomes.

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

Suggested Citation

Starr, Evan P and Bishara, Norman and Prescott, J.J., Noncompetes in the U.S. Labor Force (August 29, 2016). Available at SSRN: https://ssrn.com/abstract=2625714

Evan P Starr

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

United States
(301) 405-2320 (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)

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)

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