Non-compete Contracts: Economic Effects and Policy Implications
U.S. Department of the Treasury
[Excerpt] Non-compete agreements are contracts between workers and firms that delay employees’ ability to work for competing firms. Employers use these agreements for a variety of reasons: they can protect trade secrets, reduce labor turnover, impose costs on competing firms, and improve employer leverage in future negotiations with workers. However, many of these benefits come at the expense of workers and the broader economy. Recent research suggests that a considerable number of American workers (18 percent of all workers, or nearly 30 million people) are covered by non-compete agreements. The prevalence of such agreements raises important questions about how they affect worker welfare, job mobility, business dynamics, and economic growth more generally. This report presents insights from economic theory and evidence on the economic effects of non-compete agreements. It goes on to discuss policy implications, starting a discussion about how such agreements could be used in a way that balances the interests of firms with those of workers and society as a whole.
non-compete agreements; worker welfare; mobility; economic growth