The Labor Market Effects of Legal Restrictions on Worker Mobility

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 that 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.

Duke Scholars

Author Matthew Johnson Sanford School of Public Policy