Non-Disclosure Agreements and Externalities from Silence

Upjohn Institute Working Paper 22-360

86 Pages Posted: 9 Aug 2021 Last revised: 19 Jan 2024

See all articles by Jason Sockin

Jason Sockin

IZA Institute of Labor Economics

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: January 18, 2024

Abstract

Do employment restrictions which prohibit workers from disclosing misconduct at work, which we refer to as `broad non-disclosure agreements' (NDAs), distort labor markets? We develop a framework in which the legal risk from violating a broad NDA reduces worker willingness to share negative information about their employers, making it more difficult for high-quality employers to differentiate themselves to jobseekers. Changes in the content of Glassdoor reviews following the passage of three state laws that prohibited employers from using NDAs to conceal unlawful workplace conduct support this idea. By curtailing the flow of negative information, broad NDAs impose negative externalities 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 (January 18, 2024). 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

IZA Institute of Labor Economics ( email )

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

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 )

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