The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship

86 Pages Posted: 24 Sep 2017 Last revised: 19 Apr 2023

Date Written: April 19, 2023

Abstract

This paper examines how labor mobility restrictions like non-compete agreements affect firms’ investment decisions. Using matched employee-employer data from LinkedIn, I show that increases in the enforceability of non-compete agreements lead to widespread declines in employee departures, specifically in knowledge-intensive occupations. Established firms that rely more on these knowledge-intensive occupations increase their investment rate in physical capital. However, new firm entry in corresponding sectors declines. I provide evidence for different mechanisms to explain these patterns. Together, the findings show that labor frictions play an important role in investment decisions.

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 (April 19, 2023). Available at SSRN: https://ssrn.com/abstract=3040393 or http://dx.doi.org/10.2139/ssrn.3040393

Jessica Jeffers (Contact Author)

HEC Paris ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

HOME PAGE: http://https://sites.google.com/view/jessicajeffers/

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