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The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship

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  • Jessica S Jeffers

Abstract

This paper examines how labor mobility restrictions like noncompete agreements affect firms’ investment decisions. Using matched employee-employer data from LinkedIn, I show that increases in the enforceability of noncompete agreements lead to widespread declines in employee departures, specifically in knowledge-intensive occupations. Established firms that rely more on these knowledge-intensive occupations increase their investment rate in physical capital. However, new firm entry in corresponding sectors declines. I provide evidence for different mechanisms to explain these patterns. Together, the findings show that labor frictions play an important role in investment decisions.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Jessica S Jeffers, 2024. "The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship," Review of Finance, European Finance Association, vol. 37(1), pages 1-44.
    • Handle: RePEc:oup:revfin:v:37:y:2024:i:1:p:1-44.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhad054
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    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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