Innovation, Inventor Mobility, and the Enforceability of Noncompete Agreements
Firms often restrict workers’ mobility with Noncompete Agreements (NCAs). Using 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 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; supplementary evidence indicates the decline in mobility stifles knowledge diffusion. Analyses of technology-specific nationwide exposure, as well as cross-state spillovers via firms’ corporate networks, reveal that our state-level estimates, if anything, understate the economy-wide effects of NCA enforceability on innovation.
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