Noncompetes and Employee Mobility
57 Pages Posted: 26 Oct 2016 Last revised: 2 May 2018
Date Written: May 1, 2018
We study the relationship between employment noncompetition agreements and employee mobility using nationally representative data on 11,500 labor force participants from the 2014 Noncompete Survey Project. We find that noncompetes are associated with an 11% increase in tenure, a 35% decrease in the likelihood of leaving for a competitor, and a 54% increase in the likelihood of departing for a noncompetitor relative to a competitor compared to a nonsigner. Moreover, we find (1) that these patterns hold even in those states where noncompetes are entirely unenforceable and (2) that they are even stronger for employees who are offered noncompetes after they accept their job offers. Examining mechanisms underlying the observed retention and redirection results, we find no evidence that employees bound by noncompetes receive less recruitment attention from competitors, although they are relatively more likely to search for positions at and receive recruitment attention from noncompetitors. When it comes to turning down offers, however, we find that regardless of actual noncompete enforceability, approximately 40% of those who have received an offer from a competitor and turned it down cite their noncompete as a factor in their decision to turn down these offers. Finally, we present evidence that individuals who believe that their employer will sue them to enforce their noncompete, who believe that a court will enforce their noncompete, or who have been reminded of their noncompete by their employer are more likely to cite their noncompete as a factor when turning down competitor offers, whereas we find no evidence that actual enforceability is a deterrent.
Keywords: Covenants Not to Compete, Employee Mobility, Career Detours, Labor Market Frictions
JEL Classification: J41, J42 J62, K31
Suggested Citation: Suggested Citation