Economic Brief

November 2014, No. 14-11

Does Enforcement of Employee Noncompete Agreements Impede the Development of Industry Clusters?

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Employee noncompete agreements are widespread among technical workers and managers in technology companies. Policies regarding the enforcement of these agreements vary among states, however. The rise of the technology industry cluster in Silicon Valley and the car industry cluster in the Detroit region occurred during periods when California and Michigan courts did not enforce noncompete agreements. Research has sought to determine the extent to which enforcement of noncompetes may suppress the formation of industry clusters by restricting labor mobility and entrepreneurship.

Additional Resources

Beck, Russell, "Employee Noncompetes: A State by State Survey," Revised August 14, 2013.

Cabral, Luís, Zhu Wang, and Daniel Yi Xu, "Competitors, Complementors, Parents and Places: Explaining Regional Agglomeration in the U.S. Auto Industry," Manuscript, August 2014.

Franco, April M., and Matthew F. Mitchell, "Covenants not to Compete, Labor Mobility, and Industry Dynamics," Journal of Economics & Management Strategy, Fall 2008, vol. 17, no. 3, pp. 581-606. (An earlier version is available online.

Gilson, Ronald J., "The Legal Infrastructure of High Technology Industrial Districts: Silicon Valley, Route 128, and Covenants not to Compete," New York University Law Review, June 1999, vol. 74, no. 3, pp. 575-629.

Marx, Matt, Jasjit Singh, and Lee Fleming, "Regional Disadvantage? Non-Compete Agreements and Brain Drain," Manuscript, July 7, 2011.

Samila, Sampsa, and Olav Sorenson, "Non-Compete Covenants: Incentives to Innovate or Impediments to Growth," Management Science, March 2011, vol. 57, no. 3, pp 425-438. (A working paper version is available online.)

Starr, Evan, Natarajan Balasubramanian, and Mariko Sakakibara, "Enforcing Covenants Not to Compete: The Life-Cycle Impact on New Firms," Manuscript, June 15, 2014.

Tambe, Prasanna, and Lorin M. Hitt, "Job Hopping, Information Technology Spillovers, and Productivity Growth," Management Science, February 2014, vol. 60, no. 2, pp. 338-355.