Locked in? The Enforceability of Covenants Not to Compete and the Careers of High-Tech Workers

71 Pages Posted: 25 Jan 2017 Last revised: 18 Feb 2017

Natarajan Balasubramanian

Syracuse University - Whitman School of Management

Jin Woo Chang

University of Michigan at Ann Arbor

Mariko Sakakibara

University of California, Los Angeles (UCLA) - Policy Area

Jagadeesh Sivadasan

University of Michigan, Stephen M. Ross School of Business

Evan P Starr

University of Maryland Robert H Smith School of Business

Date Written: January 1, 2017

Abstract

We examine how the enforceability of covenants not to compete (CNCs) affects employee mobility and wages of high-tech workers. We expect CNC enforceability to lengthen job spells and constrain mobility, but its impact on wages is ambiguous. Using a matched employer-employee dataset covering the universe of jobs in thirty U.S states, we find that higher CNC enforceability is associated with longer job spells (fewer jobs over time), and a greater chance of leaving the state for technology workers. Consistent with a “lock-in” effect of CNCs, we find persistent wage-suppressing effects that last throughout a worker’s job and employment history.

Keywords: mobility, human capital, bargaining

JEL Classification: J62, J68, J31

Suggested Citation

Balasubramanian, Natarajan and Chang, Jin Woo and Sakakibara, Mariko and Sivadasan, Jagadeesh and Starr, Evan P, Locked in? The Enforceability of Covenants Not to Compete and the Careers of High-Tech Workers (January 1, 2017). US Census Bureau Center for Economic Studies Paper No. CES-WP-17-09; Ross School of Business Paper No. 1339. Available at SSRN: https://ssrn.com/abstract=2905782 or http://dx.doi.org/10.2139/ssrn.2905782

Natarajan Balasubramanian (Contact Author)

Syracuse University - Whitman School of Management ( email )

United States

Jin Woo Chang

University of Michigan at Ann Arbor ( email )

110 Tappan Hall
855 S. University Ave
Ann Arbor, MI 48109
United States

Mariko Sakakibara

University of California, Los Angeles (UCLA) - Policy Area ( email )

110 Westwood Plaza
Los Angeles, CA 90095
United States
310-825-7831 (Phone)
310-206-3337 (Fax)

Jagadeesh Sivadasan

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Evan P Starr

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

United States
(301) 405-2320 (Phone)

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