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Regional technological dynamism and noncompete clauses : Evidence from a natural experiment

Berger, Thor LU and Frey, Carl Benedikt LU (2016) In Canadian Journal of Regional Science
Abstract

In this paper, we examine the causal impact of enforceable covenants not to compete (CNCs) on labor market matching and the technological dynamism of regions. Exploiting the fact that the Michigan Antitrust Reform Act (MARA) of 1985 inadvertently repealed Michigan' s prohibition on CNC enforcement, we show that technical professionals in Michigan became increasingly likely to switch industry relative to similar workers in other U.S. states after prohibition. Workers switching industries after the introduction of MARA also earned lower wages, implying that they shifted into technical fields where their skills from previous employment were less productive. Estimates further show that the technological dynamism of Michigan declined in... (More)

In this paper, we examine the causal impact of enforceable covenants not to compete (CNCs) on labor market matching and the technological dynamism of regions. Exploiting the fact that the Michigan Antitrust Reform Act (MARA) of 1985 inadvertently repealed Michigan' s prohibition on CNC enforcement, we show that technical professionals in Michigan became increasingly likely to switch industry relative to similar workers in other U.S. states after prohibition. Workers switching industries after the introduction of MARA also earned lower wages, implying that they shifted into technical fields where their skills from previous employment were less productive. Estimates further show that the technological dynamism of Michigan declined in tandem, as fewer workers shifted into new types of jobs associated with recent technological advances. These findings are consistent with the view that skilled professionals that are subject to CNCs are more likely to leave their field of work postemployment to avoid lawsuits.

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organization
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publication status
epub
subject
in
Canadian Journal of Regional Science
publisher
Halifax
external identifiers
  • scopus:84999837378
ISSN
0022-4146
DOI
10.1111/jors.12305
language
English
LU publication?
yes
id
7c09efcf-7fa1-4672-bf3d-1899d2c608c2
date added to LUP
2017-02-22 09:57:10
date last changed
2017-02-22 09:57:10
@article{7c09efcf-7fa1-4672-bf3d-1899d2c608c2,
  abstract     = {<p>In this paper, we examine the causal impact of enforceable covenants not to compete (CNCs) on labor market matching and the technological dynamism of regions. Exploiting the fact that the Michigan Antitrust Reform Act (MARA) of 1985 inadvertently repealed Michigan' s prohibition on CNC enforcement, we show that technical professionals in Michigan became increasingly likely to switch industry relative to similar workers in other U.S. states after prohibition. Workers switching industries after the introduction of MARA also earned lower wages, implying that they shifted into technical fields where their skills from previous employment were less productive. Estimates further show that the technological dynamism of Michigan declined in tandem, as fewer workers shifted into new types of jobs associated with recent technological advances. These findings are consistent with the view that skilled professionals that are subject to CNCs are more likely to leave their field of work postemployment to avoid lawsuits.</p>},
  author       = {Berger, Thor and Frey, Carl Benedikt},
  issn         = {0022-4146},
  language     = {eng},
  month        = {10},
  publisher    = {Halifax},
  series       = {Canadian Journal of Regional Science},
  title        = {Regional technological dynamism and noncompete clauses : Evidence from a natural experiment},
  url          = {http://dx.doi.org/10.1111/jors.12305},
  year         = {2016},
}