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  5. Advances in Research on Non-Compete Agreements in Low-Wage Labor Markets
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Advances in Research on Non-Compete Agreements in Low-Wage Labor Markets

Paper Session

Monday, Jan. 5, 2026 10:15 AM - 12:15 PM (EST)

Philadelphia Convention Center, 204-C
Hosted By: American Economic Association
  • Chair: Bart Hobijn, Federal Reserve Bank of Chicago

The Effect of Noncompete Enforceability on Productivity: Evidence from a New Dataset on State-Level Manufacturing Productivity

Katherine Chang
,
Federal Trade Commission
Matthew Johnson
,
Duke University
Kurt Lavetti
,
Ohio State University
Michael Lipsitz
,
University of Pennsylvania
Devesh Raval
,
Federal Trade Commission

Abstract

Roughly 20% of U.S. workers are bound by noncompete agreements (NCAs), contractual restrictions on workers’ ability to join or form competing firms after separating from their employer. While there is now robust evidence that stricter NCA enforceability reduces workers’ wages, its effect on productivity is a priori unclear. Enforcing NCAs might lower productivity (and wages) by discouraging worker effort, creating mismatch in labor markets, limiting knowledge spillovers, or reducing entrepreneurship. Alternatively, enforcing NCAs might increase productivity by encouraging firm investment (in which case lower wages reflects a declining labor share of income). In this paper, we estimate the net effect of legal NCA enforceability on productivity. To do so, we introduce a novel dataset on state-level manufacturing productivity.

Noncompetes and Firm Heterogeneity

Axel Gottfries
,
University of Edinburgh
Gregor Jarosch
,
Duke University

Abstract

We integrate noncompete agreements into a canonical search environment with large, heterogeneous firms that compete for workers via posted wages. We assess the impact of noncompetes quantitatively, with a particular focus on firm heterogeneity.

Noncompete Agreements in Low-Wage Markets: Efficient Contracting or Exploitation?

Bhargav Gopal
,
Queen's University
Luke Rawling
,
Queen's University
Xiangru Li
,
Columbia University

Abstract

A standard theory of non-compete agreements (NCAs) is that they encourage firm-sponsored investment in workers by reducing turnover, which may benefit both parties if productivity gains are shared with workers. While this view may justify NCA use among high-skilled workers, the prevalence of NCAs in low-wage labor markets is harder to reconcile: these jobs typically involve less general training and workers are more easily replaced. We present two competing explanations. One is an efficient contracting view, in which workers with high discount rates accept NCAs in exchange for upfront compensation, even in the absence of firm-sponsored investment. The other emphasizes monopsony power, where firms use NCAs to restrict job mobility and further suppress wages when they cannot price discriminate. Using detailed worker-level data from the NLSY97 and a stacked difference-in-differences design that exploits variation across cohorts of NCA signers, we analyze how signing an NCA affects job satisfaction, wages at the time of signing, and job task content. We will use these empirical results to distinguish between the two theories.

The Relation of Noncompete Agreements with Wages and Job Tenure in Low-Wage Labor Markets: New Evidence from NLSY Data

Tristan Potter
,
Drexel University
Andre Kurmann
,
Drexel University
Bart Hobijn
,
Federal Reserve Bank of Chicago

Abstract

We exploit information on non-compete agreements (NCAs) in worker microdata from the NLSY to study the relation of NCAs with wages and job tenure of workers in U.S. low wage labor markets. We compare this evidence to previous results in the literature based on event-studies of NCA bans across U.S. states and discuss the implications for the modeling of NCAs in labor search models.
JEL Classifications
  • J4 - Particular Labor Markets
  • J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining