Non-Disclosure Agreements and Externalities from Silence
Upjohn Institute Working Paper 22-360
79 Pages Posted: 9 Aug 2021 Last revised: 22 Sep 2022
Date Written: September 21, 2022
Do non-disclosure agreements (NDAs) distort labor markets? We address this question by leveraging new data on NDA use and state laws that prohibited employers from using NDAs to conceal unlawful workplace conduct. We find that this narrowing of NDAs increased worker's willingness to share negative information, both in online reviews of employers and in sexual harassment complaints to federal agencies. In turn, employers’ average online ratings fell, dispersion in ratings across employers rose, and employee turnover slowed. Our results highlight how employers can use broad NDAs to silence workers and inflate their reputations, but doing so imposes negative externalities both on jobseekers who value such information and on competing employers who are less able to stand out.
Keywords: Imperfect Information, Non-Disclosure Agreements, Externalities, Firm Reputation
JEL Classification: M55, K31, J58
Suggested Citation: Suggested Citation