Abstract
Noncompete Agreements (NCAs) are a common way firms restrict workers' mobility, potentially contributing to declining business dynamism. Analyzing state-level law changes, we find that making NCAs easier to enforce (``stricter'' enforceability) leads to fewer patents, an effect that we show reflects a loss in true innovation. While stricter enforceability encourages firms' R&D investment, consistent with alleviating hold-up concerns, it also limits inventors' job mobility and new business formation, slowing knowledge diffusion. We provide suggestive evidence that reduced mobility partly drives the innovation decline. Variation in technology classes’ exposure to NCA enforceability reveals that our state-level estimates, if anything, underestimate the economywide effects of NCAs on innovation.
Local Organizer: Giovanni Angelini