The Effects of Non-Compete Agreements Enforceability on Entrepreneurship in the United States, 1995-2011

Sammanfattning: Restrictions of future employment in the form of non-compete agreements (agreements that restrict an employee from joining, forming, associating, or starting a competing firm) are commonly used in the American labor market. Yet their effects on entrepreneurship is not fully understood. Specifically, the relationship between non-competes and entry of firms is somewhat neglected. Therefore, an attempt to provide additional insights on the links between NCA enforceability and entrepreneurship will be made in this work. The lack of a unitary approach to the enforcement of NCA across time and states permitted an estimation of an econometric model, utilizing this state-year variation. The datasets used in this work, covering all states between 1995-2011, are the Business Dynamics Statistics and the Current Population Survey. The main results of this research suggest that a shift from the lowest to the highest enforceability level holds a 3.4\% negative effect on the entry rate of firms. This effect varies across different occupations, dimensions of NCA enforceability, and metropolitan status. Alongside a humble contribution to the academic debate, this research might equip policymakers with additional knowledge regarding the effects of NCA enforceability.