Roughly 20 percent of US workers have noncompete agreements (NCAs), restricting their ability to join or form competing firms after separating from their employer. While there is now evidence that stricter NCA enforceability reduces wages, effects on productivity are a priori unclear. Enforcing NCAs might lower productivity by discouraging worker effort, creating mismatch in labor markets, or reducing innovation and entrepreneurship. Alternatively, enforcing NCAs might increase productivity by encouraging firm investment. We estimate the net effect of legal NCA enforceability on productivity by introducing a novel dataset on state-level manufacturing.
Chang et al. (Fri,) studied this question.