Non-Competes and Profit Generation by Corporate Employees

64 Pages Posted: 27 Jul 2018

See all articles by Zhaozhao He

Zhaozhao He

University of New Hampshire - Department of Accounting & Finance

M. Babajide Wintoki

University of Kansas - School of Business

Date Written: July 6, 2018

Abstract

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

He, Zhaozhao and Wintoki, Modupe Babajide, Non-Competes and Profit Generation by Corporate Employees (July 6, 2018). Available at SSRN: https://ssrn.com/abstract=3209480 or http://dx.doi.org/10.2139/ssrn.3209480

Zhaozhao He

University of New Hampshire - Department of Accounting & Finance ( email )

Durham, NH 03824
United States
603-862-3355 (Phone)

HOME PAGE: http://sites.google.com/site/zhaozhaohe

Modupe Babajide Wintoki (Contact Author)

University of Kansas - School of Business ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States

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