Noncompetes suppress worker mobility and earnings without protecting trade secrets
Findings recently published in The Quarterly Journal of Economics provide, according to the study's authors, the clearest cause-and-effect evidence to date that noncompete agreements reduce worker mobility and earnings—while offering no measurable benefits in protecting sensitive business information.
A recent study in The Quarterly Journal of Economics concludes that noncompete agreements reduce worker mobility and earnings without providing any meaningful protection for sensitive business information. The research, led by Evan Starr of the University of Maryland and colleagues, involved over 14,000 job offers across two finance firms and represents one of the largest randomized studies on restrictive employment contracts.
The findings challenge the common assumption that noncompetes are necessary to safeguard trade secrets, as they found that noncompetes reduced both mobility and earnings without decreasing the spread of firm secrets. Workers typically skim over noncompete clauses, often unaware of the restriction until contacted by the employer after employment.
Even unenforceable noncompetes had similar effects on mobility, indicating that the presence of the clause alone impacts worker behavior. The study also examined the sharing of trade secrets between competitors and found that noncompetes do not significantly affect this behavior. While the law doesn't currently ban noncompetes, the research suggests that removing them could increase worker mobility without increasing the risk of trade-secret leakage.
Employers should consider the costs of noncompetes, such as candidate drop-off and the potential for workers to violate the restrictions, while workers should be aware of these limitations when negotiating job offers.
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