Non-compete agreements and labor allocation across product markets

Abstract

I analyze the effect of non-compete agreements (NCAs) on the allocation of inventors across product markets. NCAs constrain the within-industry employment choice set of inventors. In a staggered difference-in-differences, I show causal effects that two in hundred inventors per year (increase of 42 percent) respond to more enforceable NCAs by moving to more distant product markets. Across-industry mobility is largest for inventors likely bound by NCAs. Within-industry mobility on the other hand is reduced. Reallocated inventors are subsequently less productive and there is a lower quality match between inventors and their new employers. I highlight how product market choice set constraints can have detrimental effects through reallocation of human capital to more distant product markets.