Rematching with Contracts under Labor Mobility Restrictions: Theory and Application

Labor contracts typically do not limit worker mobility. Interesting exceptions exist in foreign worker reemployment, sports transfers and sometimes through non-compete clauses. We develop a model to address contractual designs for such markets. Although legally, a firm can contest its worker’s recruitment by a competitor, it may be more lenient if he can be replaced immediately. We develop a theory of stability suitable for such markets and propose stable-uncontested mechanisms. As our application, we consider transfers in collegiate sports governed by the NCAA, where before 2021, a student-athlete had to sit out a year after a transfer. Beginning in 2021, free mobility was allowed. Anecdotal evidence suggests while pre-2021 regulations were detrimental to student and college welfare, post-2020 regulations led to colleges struggling to keep rosters and withholding new scholarship slots to use in transfers. Our model also captures the NCAA’s pre-2021 and post-2020 regulations as well as our new proposed efficiency-enhancing criterion. Then, using data from men’s collegiate basketball, we estimate college and student-athlete preferences. Using the preferences we estimate from transfer data, we run counterfactual analyses of pre-2021 and post-2020 environments and our proposed regulations. Our proposal achieves closer student-athlete welfare to post-2020 than pre-2021 and increases college welfare with respect to post-2020 and pre-2021.