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

50 Pages Posted: 25 Jan 2017 Last revised: 6 Dec 2019

See all articles by Natarajan Balasubramanian

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 Starr

University of Maryland Robert H Smith School of Business

Date Written: December 5, 2019

Abstract

We study the relationship between the enforceability of covenants not to compete (CNCs) and employee mobility and wages. We exploit a 2015 CNC ban for technology workers in Hawaii and find that this ban increased mobility by 11% and new-hire wages by 4%. We supplement the Hawaii evaluation with a cross-state analysis using matched employer-employee data. We find that technology workers starting a job in an average-enforceability state have about 8% fewer jobs and 4.6% lower cumulative earnings relative to equivalent workers starting in a non-enforcing state, after eight years. These results are consistent with CNC enforceability increasing monopsony power.

Keywords: Covenants Not to Compete, Wages, Mobility, Monopsony

JEL Classification: J62, J68, J31

Suggested Citation

Balasubramanian, Natarajan and Chang, Jin Woo and Sakakibara, Mariko and Sivadasan, Jagadeesh and Starr, Evan, Locked In? The Enforceability of Covenants Not to Compete and the Careers of High-Tech Workers (December 5, 2019). 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 Starr

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

United States
(301) 405-2320 (Phone)

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