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Why Are Low-Wage Workers Signing Noncompete Agreements?

Author

Listed:
  • Matthew S. Johnson
  • Michael Lipsitz

Abstract

Policymakers are concerned by evidence that noncompete agreements (NCAs) are widely used in low-wage jobs. We show that firms that would otherwise not use NCAs are induced to use one in the presence of frictions to adjusting wages downward. Using a new survey of salon owners, we find that declines in the terms of trade for employees and increases in the minimum wage lead to higher NCA use, but only at firms for which the employee’s cost of an NCA likely exceeds the employer’s benefit. Furthermore, minimum wage increases have a negative effect on employment only where NCAs are unenforceable.

Suggested Citation

  • Matthew S. Johnson & Michael Lipsitz, 2022. "Why Are Low-Wage Workers Signing Noncompete Agreements?," Journal of Human Resources, University of Wisconsin Press, vol. 57(3), pages 689-724.
    • Handle: RePEc:uwp:jhriss:v:57:y:2022:i:3:p:689-724
    Note: DOI: 10.3368/jhr.57.3.0619-10274R2
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    File URL: http://jhr.uwpress.org/cgi/reprint/57/3/689
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    Citations

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    Cited by:

    1. Guimaraes, Bernardo & Cordeiro De Noronha Pessoa, Joao Paulo & Ponczek, Vladimir, 2021. "Non-compete agreements, wages and efficiency: theory and evidence from Brazilian football," LSE Research Online Documents on Economics 114417, London School of Economics and Political Science, LSE Library.
    2. Boeri, Tito & Garnero, Andrea & Luisetto, Lorenzo Giovanni, 2023. "Non-compete Agreements in a Rigid Labour Market: The Case of Italy," IZA Discussion Papers 16021, Institute of Labor Economics (IZA).
    3. Abigail Ferguson & Nellie Lew & Michael Lipsitz & Devesh Raval, 2023. "Economics at the FTC: Spatial Demand, Veterinary Hospital Mergers, Rulemaking, and Noncompete Agreements," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 63(4), pages 435-465, December.

    More about this item

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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