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Dynamic Monopsony with Large Firms and Noncompetes

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Listed:
  • Axel Gottfries
  • Gregor Jarosch

Abstract

How do noncompete agreements between workers and firms affect wages and employment in equilibrium? We build a tractable framework of wage posting with on-the-job search and large employers that provides a natural laboratory to assess anti-competitive practices in the labor market. We characterize the impact of market structure and show that noncompetes can sharply suppress wages. We validate the quantitative model with empirical evidence on the impact of mergers and noncompetes on employment and wages. Banning noncompetes in the US would raise wages by 4%. Wage gains are large when demand is inelastic, training costs are high, and when noncompetes are widespread.

Suggested Citation

  • Axel Gottfries & Gregor Jarosch, 2023. "Dynamic Monopsony with Large Firms and Noncompetes," NBER Working Papers 31965, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31965
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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • J0 - Labor and Demographic Economics - - General

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