Regional technological dynamism and noncompete clauses: Evidence from a natural experiment

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Abstract

In this paper, we examine the causal impact of enforceable covenants not to compete (CNCs) on labor market matching and the technological dynamism of regions. Exploiting the fact that the Michigan Antitrust Reform Act (MARA) of 1985 inadvertently repealed Michigan' s prohibition on CNC enforcement, we show that technical professionals in Michigan became increasingly likely to switch industry relative to similar workers in other U.S. states after prohibition. Workers switching industries after the introduction of MARA also earned lower wages, implying that they shifted into technical fields where their skills from previous employment were less productive. Estimates further show that the technological dynamism of Michigan declined in tandem, as fewer workers shifted into new types of jobs associated with recent technological advances. These findings are consistent with the view that skilled professionals that are subject to CNCs are more likely to leave their field of work postemployment to avoid lawsuits.

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  • University of Oxford
Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Economic Geography
Original languageEnglish
Pages (from-to)655-668
JournalJournal of Regional Science
Volume57
Issue number4
Early online date2016 Oct 24
Publication statusPublished - 2017 Sep
Publication categoryResearch
Peer-reviewedYes