Mobility, Skills, and the Michigan Non-Compete Experiment

TLDR

Whereas many studies have examined employee mobility, few have explored institutional factors that restrict workers from moving between firms. This paper investigates the impact of employee non‑compete agreements on mobility by exploiting Michigan’s 1985 reversal of its enforcement policy as a natural experiment. The study employs a differences‑in‑differences design, controlling for auto‑industry changes, to assess how non‑compete enforcement affects employee mobility. Non‑compete enforcement reduces mobility, particularly for inventors with firm‑specific skills and those specializing in narrow technical fields, highlighting broader implications for employee mobility research.

Abstract

Whereas a number of studies have considered the implications of employee mobility, comparatively little research has considered institutional factors governing the ability of employees to move from one firm to another. This paper explores a legal constraint on mobility—employee non-compete agreements—by exploiting Michigan's apparently inadvertent 1985 reversal of its non-compete enforcement policy as a natural experiment. Using a differences-in-differences approach, and controlling for changes in the auto industry central to Michigan's economy, we find that the enforcement of non-competes indeed attenuates mobility. Moreover, non-compete enforcement decreases mobility more sharply for inventors with firm-specific skills and for those who specialize in narrow technical fields. The results speak to the literature on employee mobility while offering a credibly exogenous source of variation that can extend previous research on the implications of such mobility.