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Mobility, Skills, and the Michigan Non-Compete Experiment

Harvard Business School, Harvard University, Boston, Massachusetts 02163
University of North Carolina–Charlotte, Charlotte, North Carolina 28223
Harvard Business School, Harvard University, Boston, Massachusetts 02163
mmarx{at}hbs.edu
dstrumsk{at}uncc.edu
lfleming{at}hbs.edu

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.

Key Words: labor; statistics; design of experiments; organizational studies; personnel; strategy; research and development; innovation
History: Received: December 26, 2006; accepted: December 9, 2008.