Revisiting Labor Mobility in Innovation Markets

Abstract

It is now widely asserted that legal regimes that enforce contractual and other limitations on labor mobility deter technological innovation. First, recent empirical studies purport to show relationships between bans on enforcing noncompete agreements, increased employee movement, and increased innovation. We find that these studies misconstrue legal differences across states and otherwise are flawed, incomplete, or limited in applicability. Second, scholars have largely adopted the view that California's policy against noncompetes promoted Silicon Valley as the world's leading technology center. By contrast, Massachusetts' enforcement of noncompetes purportedly stunted innovation in the Route 128 region near Boston. We show that this account is incomplete. During the rise of Silicon Valley, California noncompete law did not as vigorously preclude noncompetes as today and firms could substantially mimic noncompetes through contractual and other instruments. Rather, fundamental technological and economic factors more persuasively account for the rise of Silicon Valley and the Boston area has remained a significant innovation center. There is little compelling ground for the view that barring noncompetes and other limitations on employee mobility promotes innovation.

The Impact of Labor Mobility Restrictions on Managerial Actions: Evidence from the Mutual Fund Industry

“…This literature looks at the effect of NCCs on the innovation process (e.g. Gilson 1999, Fallick, Fleischman, and Rebitzer 2006, Marx, Strumsky, and Fleming 2009, Samila and Sorenson 2011, Marx, Singh, and Fleming 2015, and Barnett and Sichelman 2016, entrepreneurship (e.g., Stuart and Sorenson 2003a, and Stuart and Sorenson 2003b, Samila and Sorenson 2011, and Starr, Balasubramanian, and Sakakibara 2017, employee mobility (e.g., Fallick, Fleischman, and Rebitzer 2006, Marx, Strumsky, and Fleming 2009, and Jeffers 2018, firm-sponsored versus employee-paid training (e.g., Garmaise 2011, Starr, Prescott, and, Starr 2018, andStarr, Ganco, andCampbell 2018), wages (e.g., Mukherjee and Vasconcelos 2011 and Balasubramanian, Chang, Sakakibara, Sivadasa, and Starr 2018), firm's output (e.g., Bishara 2011, Bishara and Orozco 2012, Lobel and Amir 2014, and Anand, Hasan, Sharma, and Wang 2018, as well as on the firms' financial reporting choices (e.g., Chen, Zhang, and Zhou 2018). Our paper contributes to this literature by furthering our understanding of how participants of the labor force respond to NCCs.…”

U.S. R&D, 1975–1998: A new dataset

“…The extent of knowledge spillovers depends on the strength of intellectual property rights and substitute legal appropriability mechanisms such as trade secrecy and covenants not to compete (Barnett & Sichelman, ; Png, ; Starr, ). By combining data on such laws with the Cattell dataset, researchers can investigate the effect of legal appropriability mechanisms on clustering and spillovers.…”

Do Non-Compete Covenants Influence State Startup Activity? Evidence from the Michigan Experiment

“…We use these 10 states as one of our control groups in the analysis that follows. However, Barnett and Sichelman (2016) argue that the Stuart and Sorenson (2003) classification oversimplifies and misstates the dissimilarity in the strength of state-by-state enforcement of non-competes by classifying enforcement strength as a binary variable: "enforcing" or "nonenforcing." Barnett and Sichelman (2016) argue that the binary classification is highly inaccurate in that, with the exception of California, North Dakota, and…”

“…The misclassification of states identified by Barnett and Sichelman (2016) may not be random and could introduce systematic error. As a result, we also use a control group consisting of two states (California and North Dakota) since only these states can be classified as non-enforcing states in the entire sample period used in our study.…”

“…Marx's findings indicate that we need industry-level data to more fully address the questions of whether and to what extent non-compete covenants influence startup activity. Barnett and Sichelman (2016) point out that "no state enforces noncompetes that purport to proscribe employment at non-competing firms." Unfortunately, the Census Bureau does not make industry-level data on startup activity publicly available.…”