Non-competes and Business Dynamism

Searle Center Working Paper Series (2017-046)

Posted: 25 May 2018

See all articles by Hyo Kang

Hyo Kang

UC Berkeley Haas School of Business

Lee Fleming

Harvard University - Technology & Operations Management Unit

Date Written: November 6, 2017

Abstract

We isolate the impact of non-compete enforcement on business dynamism and the distribution of firm size and growth by focusing on Florida’s 1996 legislative change that eased restrictions on the enforcement of non-competes. We first establish the contrast between legal regimes and that wage trends did not change before and after the passage of the legislation. Difference-in-differences models show that following the change, establishments of large firms were more likely to enter Florida; they also created a greater proportion of jobs and increased their share of employment in the state. Entrepreneurs or establishments of small firms, in contrast, were less likely to enter Florida following the law change; they also created a smaller proportion of new jobs and decreased their share of employment. Consistent with these location and job creation dynamics, a variety of market concentration measures increased significantly following the law change in Florida. Nationwide cross-sections demonstrate consistent correlations between non-compete enforcement and the employment, size, and concentration dynamics illustrated in Florida.

Keywords: Business Dynamism, Employee Mobility, Firm Sorting, Non-compete Agreement, Market Concentration

JEL Classification: J61, L22, L26, M13, M51

Suggested Citation

Kang, Hyo and Fleming, Lee, Non-competes and Business Dynamism (November 6, 2017). Searle Center Working Paper Series (2017-046). Available at SSRN: https://ssrn.com/abstract=3172477

Hyo Kang (Contact Author)

UC Berkeley Haas School of Business ( email )

545 Student Services Building
Berkeley, CA 94720
United States

HOME PAGE: http://hyokang.com

Lee Fleming

Harvard University - Technology & Operations Management Unit ( email )

Boston, MA 02163
United States
617 495 6613 (Phone)
617 496 5265 (Fax)

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