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Open Access

Locked In? The Enforceability of Covenants Not to Compete and the Careers of High-Tech Workers

Natarajan Balasubramanian, Jin Woo Chang, Mariko Sakakibara, Jagadeesh Sivadasan and Evan Starr
Journal of Human Resources, April 2022, 57 (S) S349-S396; DOI: https://doi.org/10.3368/jhr.monopsony.1218-9931R1
Natarajan Balasubramanian
Natarajan Balasubramanian is a Professor of Management at the Whitman School of Management.
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Jin Woo Chang
Jin Woo Chang is a Senior Associate at Mercer.
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Mariko Sakakibara
Mariko Sakakibara is the Sanford and Betty Sigoloff Professor of Strategy at the UCLA Anderson School of Management.
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Jagadeesh Sivadasan
Jagadeesh Sivadasan is the Buzz and Judy Newton Professor of Business Administration at the University of Michigan Ross School of Business.
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Evan Starr
Evan Starr is an Associate Professor at the University of Maryland Robert H. Smith School of Business.
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Abstract

We study the relationship between the enforceability of covenants not to compete (CNCs) and employee mobility and wages. We exploit a 2015 CNC ban for technology workers in Hawaii and find that this ban increased mobility by 11 percent and new-hire wages by 4 percent. We supplement the Hawaii evaluation with a cross-state analysis using matched employer–employee data. We find that eight years after starting a job in an average-enforceability state, technology workers have about 8 percent fewer jobs and 4.6 percent lower cumulative earnings relative to equivalent workers starting in a nonenforcing state. These results are consistent with CNC enforceability increasing monopsony power.

JEL Classification:
  • J3
  • L6
  • K12
  • Received December 2018.
  • Accepted March 2020.
  • © 2022 by the Board of Regents of the University of Wisconsin System

This open access article is distributed under the terms of the CC-BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0) and is freely available online at: http://jhr.uwpress.org.

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Journal of Human Resources: 57 (S)
Journal of Human Resources
Vol. 57, Issue S
1 Apr 2022
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Locked In? The Enforceability of Covenants Not to Compete and the Careers of High-Tech Workers
Natarajan Balasubramanian, Jin Woo Chang, Mariko Sakakibara, Jagadeesh Sivadasan, Evan Starr
Journal of Human Resources Apr 2022, 57 (S) S349-S396; DOI: 10.3368/jhr.monopsony.1218-9931R1

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Locked In? The Enforceability of Covenants Not to Compete and the Careers of High-Tech Workers
Natarajan Balasubramanian, Jin Woo Chang, Mariko Sakakibara, Jagadeesh Sivadasan, Evan Starr
Journal of Human Resources Apr 2022, 57 (S) S349-S396; DOI: 10.3368/jhr.monopsony.1218-9931R1
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Keywords

  • J3
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