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Star Wars: Exclusive Talent and Collusive Outcomes in Labor Markets

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  • Arijit Mukherjee
  • Luís Vasconcelos

Abstract

Exclusive employment contracts and collusion on wages are alternative mechanisms that firms may use to extract surplus from highly productive workers ("stars"). Exclusive employment contracts (i.e., "covenant not to compete") are common in many industries, but the Courts often refrain from enforcing them, citing harm to workers due to restricted turnover. We analyze the interaction between these two channels of surplus extraction and argue that in the presence of collusion, enforcement of exclusive contracts can, in fact, benefit the workers: Although a strong enforcement of exclusivity restricts labor turnover, it can also hinder the firms' ability to sustain collusion in the labor market. We characterize the optimal level of enforcement and find that both perfect enforcement and no enforcement can be socially suboptimal. Moreover, a stronger enforcement can improve matching efficiency by rendering collusion unsustainable and may lead to a more equitable surplus distribution between the firms and the workers. (JEL J4, K21, L42, L14, M5). The Author 2011. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/jleo/ewq021
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Bibliographic Info

Article provided by Oxford University Press in its journal The Journal of Law, Economics, & Organization.

Volume (Year): 28 (2012)
Issue (Month): 4 (October)
Pages: 754-782

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Handle: RePEc:oup:jleorg:v:28:y:2012:i:4:p:754-782

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Cited by:
  1. Pedro Gonzaga & António Brandão & Helder Vasconcelos, 2014. "Theory of Semi-Collusion in the Labor Market," FEP Working Papers 522, Universidade do Porto, Faculdade de Economia do Porto.
  2. Pedro Gonzaga & António Brandão & Hélder Vasconcelos, 2013. "Theory of Collusion in the Labor Market," FEP Working Papers 477, Universidade do Porto, Faculdade de Economia do Porto.

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