Noncompetes in the U.S. Labor Force

70 Pages Posted: 3 Jul 2015 Last revised: 26 Dec 2017

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: December 24, 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 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

Suggested Citation

Starr, Evan and Prescott, J.J. and Bishara, Norman, Noncompetes in the U.S. Labor Force (December 24, 2017). 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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