Non-Competes and Profit Generation by Corporate Employees
64 Pages Posted: 27 Jul 2018
Date Written: July 6, 2018
Enforceable non-compete agreements help firms retain skilled labor, which may increase the firms’ incentives to invest. However, non-competes simultaneously discourage workers from investing in their own human capital, and reduce efficient matching between firms and workers. By focusing on the net effect of non-competes on profits generated per worker, we provide novel evidence that the latter effect dominates. Profitability per employee increases when non-compete enforceability decreases, especially in knowledge-worker-intensive firms. Lower enforceability also increases inequality among firms and workers: profitability and hiring increase the most in market-leading firms while knowledge workers experience significantly larger wage gains than other workers.
Keywords: Allocative Efficiency, Inequality, Knowledge Workers, Non-Competes, Mobility, Labor Productivity
JEL Classification: D61, G30, J24, J31, J41, J61, K31, O34
Suggested Citation: Suggested Citation