Non-Disclosure Agreements and Externalities from Silence

Upjohn Institute Working Paper 22-360

79 Pages Posted: 9 Aug 2021 Last revised: 22 Sep 2022

See all articles by Jason Sockin

Jason Sockin

University of Pennsylvania

Aaron Sojourner

W.E. Upjohn Institute for Employment Research; University of Minnesota; IZA Institute of Labor Economics

Evan Starr

University of Maryland Robert H Smith School of Business

Date Written: September 21, 2022

Abstract

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

Sockin, Jason and Sojourner, Aaron J. and Starr, Evan, Non-Disclosure Agreements and Externalities from Silence (September 21, 2022). Upjohn Institute Working Paper 22-360, Available at SSRN: https://ssrn.com/abstract=3900285 or http://dx.doi.org/10.2139/ssrn.3900285

Jason Sockin

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

Aaron J. Sojourner

W.E. Upjohn Institute for Employment Research ( email )

300 South Westnedge Avenue
Kalamazoo, MI 49007-4686
United States

University of Minnesota

Carlson School of Management
MN
United States

IZA Institute of Labor Economics ( email )

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

Evan Starr (Contact Author)

University of Maryland Robert H Smith School of Business ( email )

United States
(301) 405-2320 (Phone)

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