The Behavioral Effects of (Unenforceable) Contracts†

Abstract

We study the relationship between employment noncompetition agreements and employee mobility patterns using novel data from the 2014 Noncompete Survey Project. Specifically, we examine how noncompetes relate to the duration and nature of employee mobility, and we leverage our detailed individual-level survey data to identify and explore the precise mechanisms underlying the relationships we observe. We find that individuals with noncompetes appear to exhibit materially longer tenures and are more likely to depart for new employers that do not “compete” with their prior employers. To account for these patterns, we investigate the role noncompetes may play at each stage of the mobility “process”: job search, employer recruitment, offer receipt, negotiation, offer acceptance, etc. We present evidence that employees bound by noncompetes substitute job search activity and receptivity to recruitment in the direction of noncompetitors and that noncompetes are a factor in the choice to turn down approximately 40 percent of the offers employees receive from competitors.