The Labor Market Effects of Legal Restrictions on Worker Mobility

Matthew S. Johnson, Kurt Lavetti and Michael Lipsitz

No 31929, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We analyze how the legal enforceability of noncompete agreements (NCAs) affects labor markets. Using newly-constructed panel data, we find that higher NCA enforceability diminishes workers’ earnings and job mobility, with larger effects among workers most likely to sign NCAs. These effects are far-reaching: increasing enforceability imposes externalities on workers across state borders, suggesting broad effects on labor market dynamism. We show enforceability affects wages by reducing outside options and preventing workers from leveraging tight labor markets to increase earnings. We motivate these findings with a model of search and bargaining. Finally, higher NCA enforceability exacerbates gender and racial earnings gaps.

JEL-codes: J08 J31 J38 J61 (search for similar items in EconPapers)
Date: 2023-12
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