Noncompetes and Employee Mobility

44 Pages Posted: 26 Oct 2016 Last revised: 2 Feb 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: October 17, 2016

Abstract

We study the relationship between employment noncompetition agreements and employee mobility patterns using novel data from the 2014 Noncompete Survey Project. Specifically, we examine how noncompetes relate to the duration and nature of employee mobility, and we leverage our detailed individual-level survey data to identify and explore the precise mechanisms underlying the relationships we observe. We find that individuals with noncompetes appear to exhibit materially longer tenures and are more likely to depart for new employers that do not “compete” with their prior employers. To account for these patterns, we investigate the role noncompetes may play at each stage of the mobility “process”: job search, employer recruitment, offer receipt, negotiation, offer acceptance, etc. We present evidence that employees bound by noncompetes substitute job search activity and receptivity to recruitment in the direction of noncompetitors and that noncompetes are a factor in the choice to turn down approximately 40 percent of the offers employees receive from competitors.

Note: poss. RPS, processed -Jessica 10/26/2016

Keywords: Covenants Not to Compete, Employee Mobility, Career Detours, Labor Market Frictions

JEL Classification: J41, J42 J62, K31

Suggested Citation

Starr, Evan and Prescott, J.J. and Bishara, Norman, Noncompetes and Employee Mobility (October 17, 2016). U of Michigan Law & Econ Research Paper No. 16-032. Available at SSRN: https://ssrn.com/abstract=2858637 or http://dx.doi.org/10.2139/ssrn.2858637

Evan Starr (Contact Author)

University of Maryland Robert H Smith School of Business ( email )

United States
(301) 405-2320 (Phone)

J.J. Prescott

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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