Noncompetes and job market regulation

The last months of the Obama White House produced lots of interesting economic analysis, including this from the NEC. One issue was labor market deregulation. Check out this chart on the impact of noncompete agreements on wages:

Given my interest in the topic, I am surprised I initially missed this in the New York Times from Orly Lobel, who worked on this issue for Team Obama:

Workers bound by noncompetes cannot rely on outside offers and free-market competition to fairly value their talents. Without incentives to increase wages in-house, companies can allow salaries to plateau. And while noncompete restrictions impose hardships on every worker, for women these restrictions tend to be compounded with other mobility constraints, including the need to coordinate dual careers, family geographical ties and job market re-entry after family leave.

California and Massachusetts offer a case study within the high-tech industry. California strictly voids all noncompete agreements. Massachusetts, like most other states, enforces noncompetes. Both California and Massachusetts enjoyed an early boom of economic growth within the high-tech market, but California’s Silicon Valley has continued growing, while Massachusetts has sputtered.

Unlike in Silicon Valley, the employees of the Massachusetts tech companies were bound by noncompete agreements, and the enforcement of those agreements kept out new businesses by preventing people most likely to start new businesses — experienced former employees — from staying in the region. Meanwhile, in Silicon Valley, entrepreneurial activity flourished; thanks to California’s refusal to enforce all noncompetes (including those from other jurisdictions), it remains the tech center of the world.

Some states, including Colorado, Oregon, Illinois and New York, have recently introduced reforms. Hawaii passed a law in 2015 prohibiting noncompetes in the tech industry. Federally, Congress introduced two bills last year — the Limiting the Ability to Demand Detrimental Employment Restrictions Act (Ladder Act) and the Mobility and Opportunity for Vulnerable Employees Act (MOVE Act).