IDEAS home Printed from https://ideas.repec.org/p/cen/wpaper/17-09.html

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 examine how the enforceability of covenants not to compete (CNCs) affects employee mobility and wages of high-tech workers. We expect CNC enforceability to lengthen job spells and constrain mobility, but its impact on wages is ambiguous. Using a matched employer-employee dataset covering the universe of jobs in thirty U.S states, we find that higher CNC enforceability is associated with longer job spells (fewer jobs over time), and a greater chance of leaving the state for technology workers. Consistent with a “lock-in” effect of CNCs, we find persistent wage-suppressing effects that last throughout a worker’s job and employment history.

Suggested Citation

  • Natarajan Balasubramanian & Jin Woo Chang & Mariko Sakakibara & Jagadeesh Sivadasan & Evan Starr, 2017. "Locked In? The Enforceability of Covenants Not to Compete and the Careers of High-Tech Workers," Working Papers 17-09, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:17-09
    as

    Download full text from publisher

    File URL: https://www2.census.gov/ces/wp/2017/CES-WP-17-09.pdf
    File Function: First version, 2017
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Henry Hyatt & James Spletzer, 2013. "The recent decline in employment dynamics," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-21, December.
    2. Edward P. Lazear, 2009. "Firm-Specific Human Capital: A Skill-Weights Approach," Journal of Political Economy, University of Chicago Press, vol. 117(5), pages 914-940, October.
    3. Jonathan Gruber & Brigitte C. Madrian, 1994. "Health Insurance and Job Mobility: The Effects of Public Policy on Job-Lock," ILR Review, Cornell University, ILR School, vol. 48(1), pages 86-102, October.
    4. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," NBER Chapters, in: Investment in Human Beings, pages 9-49, National Bureau of Economic Research, Inc.
    5. Arijit Mukherjee & Luís Vasconcelos, 2012. "Star Wars: Exclusive Talent and Collusive Outcomes in Labor Markets," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 28(4), pages 754-782, October.
    6. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Do Employment Protections Reduce Productivity? Evidence from U.S. States," NBER Working Papers 12860, National Bureau of Economic Research, Inc.
    7. Romer, Paul M., 1990. "Human capital and growth: Theory and evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 251-286, January.
    8. Raghuram G. Rajan & Luigi Zingales, 2001. "The Firm as a Dedicated Hierarchy: A Theory of the Origins and Growth of Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 805-851.
    9. Marx, Matt & Singh, Jasjit & Fleming, Lee, 2015. "Regional disadvantage? Employee non-compete agreements and brain drain," Research Policy, Elsevier, vol. 44(2), pages 394-404.
    10. Amil Petrin & Jagadeesh Sivadasan, 2013. "Estimating Lost Output from Allocative Inefficiency, with an Application to Chile and Firing Costs," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 286-301, March.
    11. Sampsa Samila & Olav Sorenson, 2011. "Noncompete Covenants: Incentives to Innovate or Impediments to Growth," Management Science, INFORMS, vol. 57(3), pages 425-438, March.
    12. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 249-275.
    13. Steven J. Davis & John Haltiwanger, 2014. "Labor Market Fluidity and Economic Performance," NBER Working Papers 20479, National Bureau of Economic Research, Inc.
    14. Philip Oreopoulos & Till von Wachter & Andrew Heisz, 2012. "The Short- and Long-Term Career Effects of Graduating in a Recession," American Economic Journal: Applied Economics, American Economic Association, vol. 4(1), pages 1-29, January.
    15. Brigitte C. Madrian, 1994. "Employment-Based Health Insurance and Job Mobility: Is there Evidence of Job-Lock?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 27-54.
    16. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Does Employment Protection Reduce Productivity? Evidence From US States," Economic Journal, Royal Economic Society, vol. 117(521), pages 189-217, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. Zhu, Haoruo & Ni, Yaodong & Yang, Meng & Song, Qinyu, 2023. "Blessing or curse? Impact of incomplete information in a networked cournot competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 179(C).
    6. 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.
    7. Bartelsman, Eric & Dobbelaere, Sabien & Mattioli, Alessandro Zona, 2024. "Non-compete Agreements, Tacit Knowledge and Market Imperfections," IZA Discussion Papers 17260, IZA Network @ LISER.
    8. Julian Alves & Jason Greenberg & Yaxin Guo & Ravija Harjai & Bruno Serra-Lorenzo & John Van Reenen, 2024. "Labour market power: New evidence on Non-Compete Agreements and the effects of M&A in the UK," CEP Discussion Papers dp1976, Centre for Economic Performance, LSE.
    9. 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.
    10. 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.
    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. Yi Chen & Fabiano Dal-Ri & Thomas Jungbauer & Daniela Scur, 2025. "Poaching, raids, and managerial compensation," CEP Discussion Papers dp2118, Centre for Economic Performance, LSE.
    13. Salomé Baslandze, 2022. "Entrepreneurship through Employee Mobility, Innovation, and Growth," FRB Atlanta Working Paper 2022-10, Federal Reserve Bank of Atlanta.
    14. 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).
    15. 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.
    16. Jose Azar & Ioana Marinescu, 2024. "Monopsony Power in the Labor Market," RFBerlin Discussion Paper Series 2431, ROCKWOOL Foundation Berlin (RFBerlin).
    17. Alex Bryson & Paul Willman, 2024. "How should we think about employers’ associations?," British Journal of Industrial Relations, London School of Economics, vol. 62(2), pages 193-205, June.
    18. 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.
    19. 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.
    20. repec:jpe:journl:1947 is not listed on IDEAS
    21. Kodama, Naomi & Kambayashi, Ryo & Izumi, Atsuko, 2025. "Non-compete Agreements: Human Capital Investments or Compensated Wages?," IZA Discussion Papers 17685, IZA Network @ LISER.
    22. Susan Athey & Alex Gross & Ioana Marinescu & Jennifer Shanefelter, 2024. "The Year in Review: Economics at the Antitrust Division 2023–2024," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(4), pages 809-829, December.
    23. 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.
    24. 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.
    25. 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.

    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. 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.
    2. Ulya Tsolmon & Dan Ariely, 2022. "Health insurance benefits as a labor market friction: Evidence from a quasi‐experiment," Strategic Management Journal, Wiley Blackwell, vol. 43(8), pages 1556-1574, August.
    3. Marco Bee & Julien Hambuckers, 2020. "Modeling multivariate operational losses via copula-based distributions with g-and-h marginals," DEM Working Papers 2020/3, Department of Economics and Management.
    4. Luz A. Flórez & Leonardo Fabio Morales & Daniel Medina & José Lobo, 2021. "Labor flows across firm size, age, and economic sector in Colombia vs. the United States," Small Business Economics, Springer, vol. 57(3), pages 1569-1600, October.
    5. Okudaira, Hiroko, 2018. "The economic costs of court decisions concerning dismissals in Japan: Identification by judge transfers," International Review of Law and Economics, Elsevier, vol. 53(C), pages 60-75.
    6. Brantly Callaway & Pedro H. C. Sant'Anna, 2018. "Difference-in-Differences with Multiple Time Periods and an Application on the Minimum Wage and Employment," DETU Working Papers 1804, Department of Economics, Temple University.
    7. 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.
    8. Kerr, William R. & Nanda, Ramana, 2009. "Democratizing entry: Banking deregulations, financing constraints, and entrepreneurship," Journal of Financial Economics, Elsevier, vol. 94(1), pages 124-149, October.
    9. Matt Marx & Bram Timmermans, 2017. "Hiring Molecules, Not Atoms: Comobility and Wages," Organization Science, INFORMS, vol. 28(6), pages 1115-1133, December.
    10. repec:spo:wpmain:info:hdl:2441/3aom2mve1k829p8sp4h3vrpgkg is not listed on IDEAS
    11. Ahsan, Ahmad & Pagés, Carmen, 2009. "Are all labor regulations equal? Evidence from Indian manufacturing," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 62-75, March.
    12. repec:aep:anales:4760 is not listed on IDEAS
    13. Li, Tongxia & Ang, Tze Chuan ‘Chewie’ & Lu, Chun, 2023. "Employment protection and the provision of trade credit," Journal of Banking & Finance, Elsevier, vol. 155(C).
    14. Che, Yi & Li, Xuchao & Zhang, Yan & Zhao, Lin, 2024. "Labor protection and firms’ risk-taking behavior: evidence from China’s New Labor Contract Law," Journal of Asian Economics, Elsevier, vol. 91(C).
    15. Liyan Shi, 2023. "Optimal Regulation of Noncompete Contracts," Econometrica, Econometric Society, vol. 91(2), pages 425-463, March.
    16. Medina, Daniel & Morales, Leonardo Fabio, 2019. "Labour market fluidity and employment outcomes in Colombia: evidence from employer-employee linked data," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    17. Haaland, Venke Furre, 2013. "The Lost Generation: Effects of Youth Labor Market Opportunities on Long-Term Labor Market Outcomes," UiS Working Papers in Economics and Finance 2013/8, University of Stavanger.
    18. Gulcin Gumus & Tracy Regan, 2006. "Tax Incentives as a Solution to the Uninsured: Evidence from the Self-Employed," Working Papers 0911, University of Miami, Department of Economics, revised Oct 2008.
    19. Godsell, David & Huang, Kelly & Lao, Brent, 2023. "Managers’ rank & file employee coordination costs and real activities manipulation," Accounting, Organizations and Society, Elsevier, vol. 107(C).
    20. Alexandre Janiak & Etienne Wasmer, 2014. "Employment protection and capital-labor ratios," SciencePo Working papers hal-01061024, HAL.
    21. Alexandre Janiak & Etienne Wasmer, 2014. "Employment protection and capital-labor ratios," Sciences Po Economics Publications (main) hal-01061024, HAL.
    22. J Ignacio García-Pérez & Ioana Marinescu & Judit Vall Castello, 2019. "Can Fixed-term Contracts Put Low Skilled Youth on a Better Career Path? Evidence from Spain," The Economic Journal, Royal Economic Society, vol. 129(620), pages 1693-1730.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:cen:wpaper:17-09. 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: Dawn Anderson (email available below). General contact details of provider: https://edirc.repec.org/data/cesgvus.html .

    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.