Noncompetes in the U.S. Labor Force

57 Pages Posted: 3 Jul 2015 Last revised: 26 Jun 2017

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: June 25, 2017

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 ever signed one. Noncompetes are more likely to be found in high skill, high paying jobs, but that they are also prevalent in low skill, low paying jobs. We document that negotiation over noncompetes is rare, that firms regularly delay the offering of the noncompete until after the employee has accepted the job, and that workers often do not have an alternative employment opportunity when asked to sign. Differences in the circumstances under which noncompetes are signed are associated with starkly different outcomes: those asked to sign with the job offer and who have alternative employment options earn 16% higher wages, receive more training, and are more satisfied with their job than those not bound by noncompetes. However, those who were asked to sign after accepting the job and who did not have other employment options are less satisfied and experience none of the wage and training benefits relative to nonsigners. We find relatively little role for the enforceability of the noncompete in determining both where noncompetes are used and the strength of the relationship between a noncompete and wages and training.

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 (June 25, 2017). 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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