IDEAS home Printed from https://ideas.repec.org/a/bla/jemstr/v32y2023i2p328-347.html
   My bibliography  Save this article

Noncompete agreements, training, and wage competition

Author

Listed:
  • Oz Shy
  • Rune Stenbacka

Abstract

We study the effects of noncompete agreements in an environment where firms invest in training junior workers. After obtaining employer‐provided training, trained workers can choose whether to remain loyal to their initial employer or switch to the competing employer. We evaluate the effects of noncompete agreements on wages, employment, investment in training, production, profits, and total welfare. Firms earn higher profits and pay lower average wage when they require workers to sign noncompete agreements.

Suggested Citation

  • Oz Shy & Rune Stenbacka, 2023. "Noncompete agreements, training, and wage competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(2), pages 328-347, April.
    • Handle: RePEc:bla:jemstr:v:32:y:2023:i:2:p:328-347
    DOI: 10.1111/jems.12510
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jems.12510
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jems.12510?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Evan Starr & Natarajan Balasubramanian & Natarajan Balasubramanian, 2018. "Screening Spinouts? How Noncompete Enforceability Affects the Creation, Growth, and Survival of New Firms," Management Science, INFORMS, vol. 64(2), pages 552-572, February.
    2. Jesper Bagger & Fran?ois Fontaine & Fabien Postel-Vinay & Jean-Marc Robin, 2014. "Tenure, Experience, Human Capital, and Wages: A Tractable Equilibrium Search Model of Wage Dynamics," American Economic Review, American Economic Association, vol. 104(6), pages 1551-1596, June.
    3. April M. Franco & Matthew F. Mitchell, 2008. "Covenants not to Compete, Labor Mobility, and Industry Dynamics," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(3), pages 581-606, September.
    4. Booth, Alison L., 2014. "Wage determination and imperfect competition," Labour Economics, Elsevier, vol. 30(C), pages 53-58.
    5. Castellaneta, Francesco & Conti, Raffaele & Veloso, Francisco M. & Kemeny, Carlos A., 2016. "The effect of trade secret legal protection on venture capital investments: Evidence from the inevitable disclosure doctrine," Journal of Business Venturing, Elsevier, vol. 31(5), pages 524-541.
    6. Francesco Castellaneta, 2016. "The effect of trade secret legal protection on venture capital investments: Evidence from the inevitable disclosure doctrine," Post-Print halshs-03902431, HAL.
    7. Barankay, Iwan & Contigiani, Andrea & Hsu, David, 2018. "Trade Secrets and Innovation: Evidence from the “Inevitable Disclosure†Doctrine," CEPR Discussion Papers 13077, C.E.P.R. Discussion Papers.
    8. Andrea Contigiani & David H. Hsu & Iwan Barankay, 2018. "Trade secrets and innovation: Evidence from the “inevitable disclosure” doctrine," Strategic Management Journal, Wiley Blackwell, vol. 39(11), pages 2921-2942, November.
    9. Mark J. Garmaise, 2011. "Ties that Truly Bind: Noncompetition Agreements, Executive Compensation, and Firm Investment," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 27(2), pages 376-425.
    10. Gary S. Becker, 1964. "Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education, First Edition," NBER Books, National Bureau of Economic Research, Inc, number beck-5, March.
    11. Chen Yeh & Claudia Macaluso & Brad Hershbein, 2022. "Monopsony in the US Labor Market," American Economic Review, American Economic Association, vol. 112(7), pages 2099-2138, July.
    12. Evan P. Starr & J.J. Prescott & Norman D. Bishara, 2021. "Noncompete Agreements in the US Labor Force," Journal of Law and Economics, University of Chicago Press, vol. 64(1), pages 53-84.
    13. Meccheri, Nicola, 2009. "A note on noncompetes, bargaining and training by firms," Economics Letters, Elsevier, vol. 102(3), pages 198-200, March.
    14. Sampsa Samila & Olav Sorenson, 2011. "Noncompete Covenants: Incentives to Innovate or Impediments to Growth," Management Science, INFORMS, vol. 57(3), pages 425-438, March.
    15. Evan Starr, 2019. "Consider This: Training, Wages, and the Enforceability of Covenants Not to Compete," ILR Review, Cornell University, ILR School, vol. 72(4), pages 783-817, August.
    16. Natarajan Balasubramanian & Jin Woo Chang & Mariko Sakakibara & Jagadeesh Sivadasan & Evan Starr, 2022. "Locked In? The Enforceability of Covenants Not to Compete and the Careers of High-Tech Workers," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 349-396.
    17. Jesper Bagger & Francois Fontaine & Jean-Marc Robin, 2014. "Tenure, experience, human capital and wages: a tractable equilibrium search model of wage dynamics," CeMMAP working papers 12/14, Institute for Fiscal Studies.
    18. Kurt Lavetti, 2021. "Noncompete agreements in employment contracts," IZA World of Labor, Institute of Labor Economics (IZA), pages 486-486, September.
    19. Suman Ghosh & Kameshwari Shankar, 2017. "Optimal Enforcement Of Noncompete Covenants," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 305-318, January.
    20. Shy, Oz & Stenbacka, Rune, 2018. "Dynamic labor market competition and wage seniority," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 130-154.
    21. Francesco Castellaneta & Raffaele Conti & Francisco Veloso & Carlos Kemeny, 2016. "The effect of trade secret legal protection on venture capital investments: Evidence from the inevitable disclosure doctrine," Post-Print halshs-03902430, HAL.
    22. repec:hal:spmain:info:hdl:2441/7rep5mp5ij95l94ec64n5tdclp is not listed on IDEAS
    23. Contigiani, Andrea & Hsu, David H. & Barankay, Iwan, 2018. "Trade secrets and innovation: Evidence from the "inevitable disclosure" doctrine," Discussion Papers, Research Unit: Economics of Change SP II 2018-303, WZB Berlin Social Science Center.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hyo Kang & Wyatt Lee, 2022. "How innovating firms manage knowledge leakage: A natural experiment on the threat of worker departure," Strategic Management Journal, Wiley Blackwell, vol. 43(10), pages 1961-1982, October.
    2. Evan Starr, 2019. "Consider This: Training, Wages, and the Enforceability of Covenants Not to Compete," ILR Review, Cornell University, ILR School, vol. 72(4), pages 783-817, August.
    3. Dan Hu & Eunju Lee & Bingxin Li, 2023. "Trade secrets protection and stock price crash risk," The Financial Review, Eastern Finance Association, vol. 58(2), pages 395-421, May.
    4. Martin Ganco & Cameron D. Miller & Puay Khoon Toh, 2020. "From litigation to innovation: Firms' ability to litigate and technological diversification through human capital," Strategic Management Journal, Wiley Blackwell, vol. 41(13), pages 2436-2473, December.
    5. Mueller, Clemens, 2023. "Non-Compete Agreements and Labor Allocation Across Product Markets," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277621, Verein für Socialpolitik / German Economic Association.
    6. Gerald A. Carlino, 2017. "Do Non-Compete Covenants Influence State Startup Activity? Evidence from the Michigan Experiment," Working Papers 17-30, Federal Reserve Bank of Philadelphia.
    7. Salomé Baslandze, 2022. "Entrepreneurship through Employee Mobility, Innovation, and Growth," FRB Atlanta Working Paper 2022-10, Federal Reserve Bank of Atlanta.
    8. F.C. Stam, 2019. "The Case against Non-Compete Agreements," Working Papers 19-20, Utrecht School of Economics.
    9. Evan Starr & Natarajan Balasubramanian & Natarajan Balasubramanian, 2018. "Screening Spinouts? How Noncompete Enforceability Affects the Creation, Growth, and Survival of New Firms," Management Science, INFORMS, vol. 64(2), pages 552-572, February.
    10. Wang, Runhua, 2021. "Information asymmetry and the inefficiency of informal ip strategies within employment relationships," Technological Forecasting and Social Change, Elsevier, vol. 162(C).
    11. Dey, Aiyesha & White, Joshua T., 2021. "Labor mobility and antitakeover provisions," Journal of Accounting and Economics, Elsevier, vol. 71(2).
    12. Luigi Alberto Franzoni, 2020. "Trade secrets law," Working Papers wp1150, Dipartimento Scienze Economiche, Universita' di Bologna.
    13. He, Zhaozhao, 2018. "Money held for moving stars: Talent competition and corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 51(C), pages 210-234.
    14. Liyan Shi, 2023. "Optimal Regulation of Noncompete Contracts," Econometrica, Econometric Society, vol. 91(2), pages 425-463, March.
    15. Guido Bünstorf & Christoph Engel & Sven Fischer & Werner Güth, 2013. "Win Shift Lose Stay - An Experimental Test of Non-Compete Clauses," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2013_17, Max Planck Institute for Research on Collective Goods.
    16. Evan Starr & Justin Frake & Rajshree Agarwal, 2019. "Mobility Constraint Externalities," Organization Science, INFORMS, vol. 30(5), pages 961-980, September.
    17. Dan A. Black & Lars Skipper & Jeffrey A. Smith & Jeffrey Andrew Smith, 2023. "Firm Training," CESifo Working Paper Series 10268, CESifo.
    18. Buenstorf, Guido & Engel, Christoph & Fischer, Sven & Gueth, Werner, 2016. "Non-compete clauses, employee effort and spin-off entrepreneurship: A laboratory experiment," Research Policy, Elsevier, vol. 45(10), pages 2113-2124.
    19. Cici, Gjergji & Hendriock, Mario & Kempf, Alexander, 2018. "The impact of labor mobility restrictions on managerial actions: Evidence from the mutual fund industry," CFR Working Papers 18-01, University of Cologne, Centre for Financial Research (CFR).
    20. Fedorenko, Ivan & Berthon, Pierre & Edelman, Linda, 2023. "Top secret: Integrating 20 years of research on secrecy," Technovation, Elsevier, vol. 123(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jemstr:v:32:y:2023:i:2:p:328-347. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.kellogg.northwestern.edu/research/journals/JEMS/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.