Innovation, Inventor Mobility, and the Enforceability of Noncompete Agreements

Matthew S. Johnson, Michael Lipsitz and Alison Pei

No 31487, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Firms often restrict workers’ mobility with Noncompete Agreements (NCAs). Using state-level law changes, we find that making NCAs easier to enforce (“stricter” enforceability) leads to fewer patents, an effect that we show reflects a loss in innovation. While stricter enforceability encourages firms’ R&D investment, consistent with alleviating hold-up concerns, it also limits inventors’ job mobility and new business formation; supplementary evidence indicates the decline in mobility stifles knowledge diffusion. Analyses of technology-specific nationwide exposure, as well as cross-state spillovers via firms’ corporate networks, reveal that our state-level estimates, if anything, understate the economy-wide effects of NCA enforceability on innovation.

JEL-codes: J38 O31 O38 (search for similar items in EconPapers)
Date: 2023-07
New Economics Papers: this item is included in nep-ino, nep-lma, nep-reg, nep-sbm and nep-tid
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