Noncompetes in the U.S. Labor Force

Journal of Law and Economics 2021

69 Pages Posted: 3 Jul 2015 Last revised: 23 Sep 2021

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: October 12, 2020

Abstract

Using nationally representative survey data on 11,505 labor force participants, we examine the use and implementation of noncompete agreements as well as the employee outcomes associated with these provisions. Approximately 18% of labor force participants are bound by noncompetes, with 38% agreeing 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 and in states where noncompetes are unenforceable. Only 10% of employees negotiate over their noncompete, and about one-third of employees are presented with their noncompete only after having already accepted their job offer. Early-notice noncompetes are associated with better employee outcomes, while employees who agree to late-notice noncompetes are comparatively worse off. Regardless of noncompete timing, however, wages are relatively lower where noncompetes are easier to enforce. We discuss these findings in light of competing theories of the economic value of noncompetes.

Keywords: covenants not to compete, employment law, transparency

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 (October 12, 2020). Journal of Law and Economics 2021, 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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