The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship

61 Pages Posted: 24 Sep 2017 Last revised: 4 Jan 2020

See all articles by Jessica Jeffers

Jessica Jeffers

University of Chicago - Booth School of Business

Date Written: December 24, 2019

Abstract

This paper examines how labor frictions affect investment rate and new firm entry. Using matched employee-employer data from LinkedIn, I first show that increases in the enforceability of non-compete agreements lead to widespread declines in employee departures across seniority levels, driven by workers in knowledge-intensive occupations. Investment rates at existing firms increase, especially for firms that employ more skilled workers. This comes at the expense of new firm entry, which declines substantially in knowledge-intensive sectors. The results suggest that labor frictions play an important role in investment decisions, and that NCs may factor into slowing business dynamism.

Keywords: Labor mobility, entrepreneurship, investment, non-competes, human capital

JEL Classification: J24, J41, J62, E22, L26, K31

Suggested Citation

Jeffers, Jessica, The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship (December 24, 2019). Available at SSRN: https://ssrn.com/abstract=3040393 or http://dx.doi.org/10.2139/ssrn.3040393

Jessica Jeffers (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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