Who Really Gains When Noncompetes Weaken?

Noncompete agreements sit at the center of a live policy fight. They protect firms' investments in people and ideas, but they also chain workers in place. Using staggered state-level changes in how strictly noncompetes are enforced, this research traces what happens when the chains loosen.

Weaker enforcement raises profitability, valuation, productivity, and plant-level growth at knowledge-worker-intensive firms relative to other firms. But the gains are not spread evenly. They concentrate among the most productive knowledge-intensive firms.

The mechanism is sorting. Using inventor-level data, the study shows that when noncompetes stop binding, more productive inventors migrate toward more productive firms. Top firms attract top talent, and performance dispersion across knowledge industries widens as the leaders pull away.

For policymakers weighing noncompete reform, the evidence suggests mobility is not only a worker-protection issue. It reallocates talent toward the firms best able to use it. The paper received the Southern Finance Association's best empirical finance paper award.