Employee Non-compete Agreements, Gender, and Entrepreneurship

Abstract

I contribute to the literature on institutions, gender, and entrepreneurship by showing that macro-level institutional policies that do not explicitly target women disproportionately affect their ability to leverage prior professional experience in founding new ventures. Examining workers in 25 states and the District of Columbia from 1990-2014, I find that women subject to tighter non-compete policies are less likely to leave their employers and start rival businesses. Two mechanisms suggest that non-competes contribute to a disproportionate “chilling effect” on entrepreneurship among women. First, women face higher relative costs of potential litigation due to lower earnings prior to founding. Second, women fact a higher wage penalty when returning to paid employment following an unsuccessful venture. The effect is not explained by actual non-compete lawsuits, where women are markedly underrepresented.

Keywords: entrepreneurship, gender, non-competes

JEL Classification: L26, P48, J41, J16