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Locked In? The Enforceability of Covenants Not to Compete and the Careers of High-Tech Workers

Author

Listed:
  • Natarajan Balasubramanian
  • Jin Woo Chang
  • Mariko Sakakibara
  • Jagadeesh Sivadasan
  • Evan Starr

Abstract

We study the relationship between the enforceability of covenants not to compete (CNCs) and employee mobility and wages. We exploit a 2015 CNC ban for technology workers in Hawaii and find that this ban increased mobility by 11 percent and new-hire wages by 4 percent. We supplement the Hawaii evaluation with a cross-state analysis using matched employer–employee data. We find that eight years after starting a job in an average-enforceability state, technology workers have about 8 percent fewer jobs and 4.6 percent lower cumulative earnings relative to equivalent workers starting in a nonenforcing state. These results are consistent with CNC enforceability increasing monopsony power.

Suggested Citation

  • 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.
    • Handle: RePEc:uwp:jhriss:v:57:y:2022:i:s:p:s349-s396
    Note: DOI: 10.3368/jhr.monopsony.1218-9931R1
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    2. Ruyu Chen & Natarajan Balasubramanian & Chris Forman, 2024. "How does worker mobility affect business adoption of a new technology? The case of machine learning," Strategic Management Journal, Wiley Blackwell, vol. 45(8), pages 1510-1538, August.
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    6. Akin A. Cilekoglu, 2023. "“Labor Market Monopsony and Firm Behavior: Evidence from Spanish Exporters”," AQR Working Papers 202304, University of Barcelona, Regional Quantitative Analysis Group, revised Jul 2023.
    7. Akin A. Cilekoglu, 2023. ""Labor Market Monopsony and Firm Behavior: Evidence from Spanish Exporters"," IREA Working Papers 202307, University of Barcelona, Research Institute of Applied Economics, revised Jul 2023.
    8. repec:jpe:journl:1947 is not listed on IDEAS
    9. Thomaz Teodorovicz & Sérgio Lazzarini & Sandro Cabral & Anita M. McGahan, 2024. "Investing in general human capital as a relational strategy: Evidence on flexible arrangements with contract workers," Strategic Management Journal, Wiley Blackwell, vol. 45(5), pages 902-938, May.
    10. Abdulaziz Reshid & Erik Hegelund & Peter Svensson, 2025. "Indirect effects of R&D subsidies: labor mobility as a channel for knowledge spillovers," Small Business Economics, Springer, vol. 65(2), pages 1113-1140, August.
    11. 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.
    12. Jose Azar & Ioana Marinescu, 2024. "Monopsony Power in the Labor Market," RFBerlin Discussion Paper Series 2431, ROCKWOOL Foundation Berlin (RFBerlin).
    13. Hobbs, Duncan & Strain, Michael R., 2024. "Do Reemployment Bonuses Increase Employment? Evidence from the Idaho Return to Work Bonus Program," IZA Discussion Papers 16924, IZA Network @ LISER.
    14. Kodama, Naomi & Kambayashi, Ryo & Izumi, Atsuko, 2025. "Non-compete Agreements: Human Capital Investments or Compensated Wages?," IZA Discussion Papers 17685, IZA Network @ LISER.
    15. Bartelsman, Eric & Dobbelaere, Sabien & Mattioli, Alessandro Zona, 2024. "Non-compete Agreements, Tacit Knowledge and Market Imperfections," IZA Discussion Papers 17260, IZA Network @ LISER.
    16. Yi Chen & Fabiano Dal-Ri & Thomas Jungbauer & Daniela Scur, 2025. "Poaching, raids, and managerial compensation," CEP Discussion Papers dp2118, Centre for Economic Performance, LSE.
    17. 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).
    18. Brian Callaci & Matthew Gibson & Sérgio Pinto & Marshall Steinbaum & Matt Walsh, 2024. "Grads on the Go: The Effect of Franchise No-Poaching Restrictions On Worker Earnings," Upjohn Working Papers 24-405, W.E. Upjohn Institute for Employment Research.
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    20. An, Suwei, 2023. "Essays on incentive contracts, M&As, and firm risk," Other publications TiSEM dd97d2f5-1c9d-47c5-ba62-f, Tilburg University, School of Economics and Management.
    21. Callaci, Brian & Gibson, Matthew & Pinto, Sérgio & Steinbaum, Marshall & Walsh, Matt, 2023. "The Effect of Franchise No-Poaching Restrictions on Worker Earnings," IZA Discussion Papers 16330, IZA Network @ LISER.
    22. Guimaraes, Bernardo & Cordeiro De Noronha Pessoa, Joao Paulo & Ponczek, Vladimir, 2021. "Non-compete agreements, wages and efficiency: theory and evidence from Brazilian football," LSE Research Online Documents on Economics 114417, London School of Economics and Political Science, LSE Library.
    23. 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.
    24. Hoffman, Mitchell & Burks, Stephen V., 2017. "Training Contracts, Employee Turnover, and the Returns from Firm-Sponsored General Training," IZA Discussion Papers 10835, IZA Network @ LISER.
    25. Alison Hole & Michael LeGower & Michael Lipsitz & Aviv Nevo, 2024. "Economics at the FTC: Non-Horizontal Mergers, the CARS Rule, and the Non-Compete Rule," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(4), pages 933-965, December.

    More about this item

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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