2
$\begingroup$

Today I read in a non-scientific article that Amazon requires some physical workers to sign non-compete agreements. I used to think that the idea behind allowing non-compete clauses in contracts is to protect a companies' intellectual property. The article mentions that non-competes may also serve to protect a company's investment in case it pays for the employee's education or training. Neither of these seems to fit this case.

What scientific articles (in fields of mathematical economics, such as Industrial Organization) describe models where allowing for non-compete clauses improves the situation of both the employer and the employee?

Improve this question
$\endgroup$

1 Answer 1

Reset to default
2
$\begingroup$

Ghosh and Shankar (2017) "Optimal Enforcement of Noncompete Covenants", Economic Inquiry

Noncompete covenants or covenant not to compete (CNC) are clauses in employment contracts in which the employee agrees not to gain employment with a competitor firm. In this article, we study the efficiency aspects of such contracts by incorporating the effect of labor mobility restrictions on knowledge transfer across firms, investment decisions by firms, and investment by workers. Following research that shows state‐wise variations in the degree of CNC enforcement, we allow the strength of CNC enforcement to vary as a matter of regulatory policy and derive the optimal strength of enforcement. We also look at how regulations around CNCs should be optimally designed when employers can use collusive agreements, such as “no poaching” agreements, as an alternative to noncompete clauses. Given recent allegations of employer collusion among large Silicon Valley firms, we argue for a cautious approach in designing policies on CNC enforcement.

Garmaise (2011) "Ties that Truly Bind: Noncompetition Agreements, Executive Compensation, and Firm Investment", Journal of Law, Economics, & Organization

We study the effects of non-competition agreements by analyzing time-series and cross-sectional variation in the enforceability of these contracts across U.S. states. We find that tougher noncompetition enforcement promotes executive stability. Increased enforceability also results in reduced executive compensation and shifts its form towards greater use of salary. We further show that stricter enforcement reduces research and development spending and capital expenditures per employee. These results are consistent with a model in which enforceable non-competition contracts encourage firms to invest in their managers’ human capital. On the other hand, our findings suggest that these contracts also discourage managers from investing in their own human capital and that this second effect is empirically dominant.

Two other recent empirical papers may also be of interest:

Improve this answer
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.