The Effects of Non-Compete Agreements on Different Types of Self-Employment: Evidence from Massachusetts and Utah

40 Pages Posted: 29 Jun 2020 Last revised: 18 Aug 2022

See all articles by Ege Can

Ege Can

University of Alabama in Huntsville

Frank M. Fossen

University of Nevada, Reno; IZA Institute of Labor Economics

Abstract

The economic effects of non-compete agreements have received increasing attention from academics and policymakers. This paper investigates how non-compete policies affect different types of self-employment. We exploit policy reforms in Utah and Massachusetts in 2016 and 2018, which decreased the enforceability of non-compete covenants, as quasi-experiments. We separate self-employment into self-employment with incorporated businesses (as a proxy for entrepreneurship) and self-employment with unincorporated businesses. Using representative individual-level data from the American Community Survey and the Current Population Survey, we estimate the probability of being self-employed with these different types of businesses, as well as entry into self-employment, and how these probabilities changed due to the reforms. Our findings show that the decrease in the enforceability of non-compete agreements in the two states resulted in a higher rate of incorporated self-employment in these states. In contrast, there was no sizable effect on the rate of unincorporated self-employment. Our results imply that states can promote entrepreneurial activity by reducing the enforceability of non-compete agreements.

Keywords: incorporated, non-compete agreements, entrepreneurship, unincorporated

JEL Classification: L26, O38, J23

Suggested Citation

Can, Ege and Fossen, Frank M., The Effects of Non-Compete Agreements on Different Types of Self-Employment: Evidence from Massachusetts and Utah. IZA Discussion Paper No. 13414, Available at SSRN: https://ssrn.com/abstract=3636643

Ege Can (Contact Author)

University of Alabama in Huntsville ( email )

Frank M. Fossen

University of Nevada, Reno ( email )

1664 N. Virginia Street
Reno, NV 89557-0030
United States

HOME PAGE: http://business.unr.edu/faculty/ffossen/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/en/webcontent/personnel/photos/index_html?key=2906

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