Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
The Economics of Noncompete Clauses
Journal of Economic Perspectives
(pp. 139–66)
(Complimentary)
Abstract
For over 600 years, debates over noncompete clauses have centered on whether they function as efficient contracting tools or anticompetitive restraints on workers. This article reassesses that debate in light of recent policy attention and new empirical and theoretical research. Proponents argue that noncompetes are necessary to protect investments in training and trade secrets, increasing productivity and wages. However, recent studies indicate that the widespread use of noncompetes—frequently extending beyond roles involving sensitive information—and their enforceability lower mobility, wages, innovation, and entrepreneurship. Moreover, in many cases, less restrictive contractual terms appear to safeguard firm interests. Evidence of spillovers to other workers and across state boundaries, as well as behavioral effects even when noncompetes are unenforceable, raises questions about whether existing state-level enforcement regimes adequately address their observed impacts.Citation
Starr, Evan. 2026. "The Economics of Noncompete Clauses." Journal of Economic Perspectives 40 (1): 139–66. DOI: 10.1257/jep.20251457Additional Materials
JEL Classification
- D86 Economics of Contract: Theory
- J41 Labor Contracts
- J63 Labor Turnover; Vacancies; Layoffs
- J83 Labor Standards: Workers' Rights
- K12 Contract Law
- K31 Labor Law
- O31 Innovation and Invention: Processes and Incentives