Research Alert

The debate over whether noncompete agreements help or hurt employees is addressed in four research papers forthcoming in top journals and co-authored by management professor Evan Starr at the University of Maryland’s Robert H. Smith School of Business. The results, he says, point to the same conclusion: Noncompetes stifle workers.

The findings will be published as “Low Wage Workers and the Enforceability of Non-compete Agreements” in Management Science, “Locked In? The Enforceability of Covenants Not to Compete and the Careers of High-Tech Workers” in the Journal of Human Resources, “The Behavioral Effects of (Unenforceable) Contracts” in the Journal of Law, Economics, and Organization, and “Noncompete Agreements in the U.S. Labor Force” in the Journal of Law and Economics.

The latter publication, Starr says, represents the most sweeping work and is the first systematic investigation of noncompetes in the United States. In it, he studies a nationally representative sample, looking at all sorts of workers. One of the key findings: Noncompetes are found even among low-wage workers. “There have been anecdotes of that fact, but this is the first systematic evidence,” Starr says. “This is shocking because when you think about noncompetes, you think about tech workers and executives – you’re not thinking about doggie-daycare sitters or hairstylists or yoga instructors, but that’s the modal worker that’s bound by a noncompete. Our paper launches from that fact, and the key question for policymakers is this a good or a bad thing?”

“The argument for why they are bad is pretty clear,” Starr says. “Take the case of the low-wage worker, earning $12 an hour, who gets a better offer at a competitor to make $15 an hour. A noncompete could prevent them from making those sorts of moves that are going to enhance their social and economic mobility,” Starr says.

Collectively, Starr’s papers show that workers do better without noncompete agreements. But what about firms?

Firms may be less profitable if they have to pay workers more, Starr says, but there’s definitely a benefit for them too: Without noncompetes, firms have unfettered access to the labor market and can hire the workers they want to hire, including those from a competitor.

“It’s not really a firm versus worker issue,” Starr says. “It could be a win for both workers and firms.”