The Labor Market Effects of Legal Restrictions on Worker Mobility

70 Pages Posted: 18 Sep 2019 Last revised: 9 Jun 2020

See all articles by Matthew S. Johnson

Matthew S. Johnson

Duke University - Sanford School of Public Policy

Kurt Lavetti

Ohio State University

Michael Lipsitz

Federal Trade Commission Bureau of Economics

Date Written: June 6, 2020

Abstract

We analyze how the legal enforceability of Noncompete Agreements (NCAs) affects labor markets. Using newly-constructed panel data, we find that higher NCA enforceability diminishes workers’ earnings and job mobility, with larger effects among workers most likely to sign NCAs. These effects are far-reaching: examining local labor markets that cross state borders reveals that enforceability affects workers’ earnings in different legal jurisdictions. Revisiting a classic model of wage-setting, we find that—in contrast to prior evidence—workers facing high enforceability are unable to leverage tight labor markets to increase their wage. Finally, higher NCA enforceability exacerbates gender and racial wage gaps.

Keywords: noncompete agreements, earnings, wage stagnation

Suggested Citation

Johnson, Matthew and Lavetti, Kurt and Lipsitz, Michael, The Labor Market Effects of Legal Restrictions on Worker Mobility (June 6, 2020). Available at SSRN: https://ssrn.com/abstract=3455381 or http://dx.doi.org/10.2139/ssrn.3455381

Matthew Johnson (Contact Author)

Duke University - Sanford School of Public Policy ( email )

201 Science Drive
Box 90312
Durham, NC 27708-0239
United States

Kurt Lavetti

Ohio State University ( email )

410 Arps Hall
1945 North High Street
Columbus, OH 43210
United States

Michael Lipsitz

Federal Trade Commission Bureau of Economics ( email )

600 Pennsylvania Ave NW
Washington, DC 20580
United States

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