Noncompetes in the U.S. Labor Force

86 Pages Posted: 3 Jul 2015 Last revised: 2 Sep 2019

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: August 30, 2019

Abstract

Using nationally representative survey data on 11,505 labor force participants, we examine the use, implementation, and labor market outcomes associated with noncompete agreements. Nearly 1 in 5 labor force participants were bound by noncompetes in 2014, and nearly 40% had signed 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 them. Approximately 10% of employees negotiate over their noncompetes and roughly one-third of noncompetes are signed (with no additional consideration) after applicants have already accepted their job offers. Differences in the timing of the noncompete are associated with different outcomes: those presented with a noncompete before accepting the associated job offer earn 9.7% higher wages, receive 11% more training, and are 6.6% more satisfied with their position than those who are not bound by noncompetes. In contrast, those asked to sign after accepting their job offer are 12.5% less satisfied in their job and experience no wage and training benefits. We conclude that noncompetes may be efficient contracting tools under certain conditions, but also that they have the potential to serve as intertemporal conduits of monopsony power.

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 (August 30, 2019). 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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