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

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  • 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
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    11. 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.
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    13. Salomé Baslandze, 2022. "Entrepreneurship through Employee Mobility, Innovation, and Growth," FRB Atlanta Working Paper 2022-10, Federal Reserve Bank of Atlanta.
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    17. Callaci, Brian & Gibson, Matthew & Pinto, Sergio & Steinbaum, Marshall & Walsh, Matt, 2023. "The Effect of Franchise No-Poaching Restrictions on Worker Earnings," IZA Discussion Papers 16330, Institute of Labor Economics (IZA).
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    19. Kodama, Naomi & Kambayashi, Ryo & Izumi, Atsuko, 2025. "Non-compete Agreements: Human Capital Investments or Compensated Wages?," IZA Discussion Papers 17685, Institute of Labor Economics (IZA).
    20. 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.
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    23. 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.

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    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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