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legal economics research paper

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journal: Review of Law & Economics

Review of Law & Economics

  • Online ISSN: 1555-5879
  • Type: Journal
  • Language: English
  • Publisher: De Gruyter
  • First published: April 1, 2005
  • Publication Frequency: 3 Issues per Year
  • Audience: researchers and practitioners dealing with problematic aspects of law and economics

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: changes in enforceability impose externalities on workers across state borders, suggesting that enforceability broadly affects labor market dynamism. We provide evidence that NCA enforceability primarily affects wages through its effect on workers' outside options; moreover, workers facing high enforceability are unable to leverage tight labor markets to increase earnings. We motivate these findings by embedding NCA enforceability in a search model with bargaining. Finally, higher NCA enforceability exacerbates gender and racial earnings gaps.

We thank Kevin Lang, Eric Posner, and Johannes Schmieder for their helpful comments, as well as audience members at Miami University, Carolina Region Empirical Economics Day, the Annual Meeting of the Society of Labor Economists, UC Davis, University of Hawaii, Duke University, Ohio State University, the Russell Sage Foundation Non-Standard Work Meeting, Haverford College, the Federal Trade Commission, the Department of Justice, the Department of the Treasury, and the Bureau of Labor Statistics. We thank Anna Stansbury for providing us data on occupational leave shares, Evan Starr for helpful feedback and assistance with data on court filings, and Lars Vilhuber for help with the QWI data. We thank Tristan Baker, Richard Braun, Florencia Fernandez, and Katie Heath for invaluable research assistance. This work has been supported by Grant # 1811-10425 from the Russell Sage Foundation and the W.K. Kellogg Foundation. The views expressed in this article are those of the authors and do not necessarily reflect those of either Foundation, or of the Federal Trade Commission or any individual commissioner. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

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COMMENTS

  1. Review of Law & Economics

    Objective The Review of Law & Economics ( RLE ) is published in cooperation with the European Association of Law and Economics ( EALE ) and De Gruyter. The Review publishes theoretical and empirical interdisciplinary research in law and economics-related subjects. The Journal explores the various understandings that economic approaches shed on legal institutions. It specializes in the ...

  2. The Labor Market Effects of Legal Restrictions on Worker

    The Labor Market Effects of Legal Restrictions on Worker Mobility. Matthew S. Johnson, Kurt J. Lavetti & Michael Lipsitz. Working Paper 31929. DOI 10.3386/w31929. Issue Date December 2023. We analyze how the legal enforceability of noncompete agreements (NCAs) affects labor markets. Using newly-constructed panel data, we find that higher NCA ...