The Effects of Non-Compete Agreements on Different Types of Self-Employment: Evidence from Massachusetts and Utah

Ege Can () and Frank Fossen
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Ege Can: University of Nevada, Reno

No 13414, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The economic effects of non-compete agreements have received increasing attention from academics and policymakers. This paper investigates how non-compete policies affect different types of self-employment. We exploit policy reforms in Utah and Massachusetts in 2016 and 2018, which decreased the enforceability of non-compete covenants, as quasi-experiments. We separate self-employment into self-employment with incorporated businesses (as a proxy for entrepreneurship) and self-employment with unincorporated businesses. Using representative individual-level data from the American Community Survey and the Current Population Survey, we estimate the probability of being self-employed with these different types of businesses, as well as entry into self-employment, and how these probabilities changed due to the reforms. Our findings show that the decrease in the enforceability of non-compete agreements in the two states resulted in a higher rate of incorporated self-employment in these states. In contrast, there was no sizable effect on the rate of unincorporated self-employment. Our results imply that states can promote entrepreneurial activity by reducing the enforceability of non-compete agreements.

Keywords: incorporated; non-compete agreements; entrepreneurship; unincorporated (search for similar items in EconPapers)
JEL-codes: J23 L26 O38 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2020-06
New Economics Papers: this item is included in nep-ent and nep-lma
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Published - revised version published as 'The Enforceability of Non-Compete Agreements and Different Types of Entrepreneurship: Evidence from Utah and Massachusetts' in: Journal of Entrepreneurship and Public Policy, 2022, 11 (2/3), 223-252

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