Worker Heterogeneity and the Effect of Noncompetes on Firm Performance

Using staggered state‐level changes in noncompete enforceability, we document that reduced enforcement increases profitability, valuation, productivity, and plant‐level growth in knowledge‐worker‐intensive firms relative to other firms. Critically, these gains are concentrated among the most productive knowledge‐worker firms, consistent with an assortative matching mechanism in which top firms attract the most productive workers when noncompetes no longer bind. Using inventor‐level data, we find direct evidence of this sorting: more productive inventors migrate toward more productive firms following reductions in enforceability. Consequently, performance dispersion widens across knowledge‐worker‐intensive industries, as the most productive firms pull further ahead of their less productive peers.