Non-Competes, Human Capital Policy & Regional Competition

Abstract

In the past few years, human capital law has become one of the most dynamic policy fields in the country. Multiple states have reformed their noncompete policies, passing new legislation that limits their use. New bills that would similarly limit the enforcement of noncompetes are currently before Congress. Both the use of noncompetes and litigation over their enforcement, are on the rise nationwide, and several state attorney generals have taken up the issue by launching investigations into employers who require their workforce to sign unenforceable noncompetes. An equally dazzling wealth of studies, analysis, intellectual debates, and exchanges have emerged on the research side. In particular, the past few years brought a significant number of empirical, experimental, and theoretical studies offering more evidence and explanations about the key role that human capital policy, including noncompete contracts, plays in industries and regions. This article, written for a symposium honoring the scholarship of Professor Ronald Gilson, I present the state of the scholarly field on human capital and economic competition and develop three arguments about the future of noncompete research. First, in Part I, I unpack the multiple dynamic effects that job mobility and noncompetes have on regions. Beyond knowledge spillovers, it is important to recognize a range of distinct, though interrelated effects. These include at least ten important aspects that are supported by job mobility: behavioral, dynamic, firm-level, and regional-level effects. In particular, a neglected aspect in the literature of noncompetes is the disproportionate harmful effect noncompete clauses may have on women. Recent economic research on labor market monopsonies and the relationship between mobility and wage growth allows us to see connections between innovation policy and distributive justice. Second, I argue that while the study of noncompetes has been invaluable to understanding talent flows, mobility restrictions are far broader than merely formal covenants not to compete. Covenants that restrict employee mobility appear in many shapes and forms. I introduce the range of contractual restrictions that employers require in standard agreements and I argue that these restrictions too, should be understood and researched through the lens of labor market competition and mobility. Third, I argue that the prevalence of practices that subvert policy requirements, such as including unenforceable restrictions in employment contracts underscores how we as scholars need to encompass market practices in the empirical research, as well as recognize comparative advantages of proactive solutions including antitrust and regulatory tools over contract doctrine.

Keywords: non-competes, human capital, non-compete clause

JEL Classification: K00, K10, K12