Innovation through Labor Mobility: Evidence from Non-Compete Agreements

65 Pages Posted: 26 May 2023 Last revised: 30 May 2024

See all articles by Kate Reinmuth

Kate Reinmuth

Stanford University, Department of Economics; Stanford Law School

Emma Rockall

Stanford University; Stanford University - Department of Economics

Date Written: May 25, 2023

Abstract

Much of the United States workforce is subject to non-compete agreements. Proponents argue that non-competes provide innovation incentives that outweigh negative worker outcomes like suppressed wages. In reality, the causal effect of non-competes on innovation is an open empirical question. Leveraging plausibly exogenous state-level changes in the enforceability of non-compete agreements, we find a significant negative effect on innovation: a 13% decrease in patenting for an average-sized increase in enforceability. Further analysis shows that this effect manifests primarily for incumbents rather than entrants. Moreover, our work suggests a central role for labor mobility as a channel of idea diffusion that increases overall innovation, with inventor mobility expected to fall alongside patenting by 22% for an increase in enforceability of the mean size in our sample.

Keywords: Non-Compete Agreements, Innovation, Labor Mobility, Knowledge Diffusion

JEL Classification: O31, O33, J21, E24, K31

Suggested Citation

Reinmuth, Kate and Rockall, Emma, Innovation through Labor Mobility: Evidence from Non-Compete Agreements (May 25, 2023). Available at SSRN: https://ssrn.com/abstract=4459683 or http://dx.doi.org/10.2139/ssrn.4459683

Kate Reinmuth (Contact Author)

Stanford University, Department of Economics

Stanford, CA 94305
United States

Stanford Law School

Stanford, CA 94305
United States

Emma Rockall

Stanford University ( email )

Stanford, CA 94305
United States

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
STANFORD, CA 94305-6072
United States

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