Abstract
Non-compete agreements (NCA) are contracts between employers and employees that restrict the former from leaving their job to work for or start a competing firm. As such, NCAs reduce labor mobility, and ultimately entrepreneurship, by imposing transactions costs on employees who want to change jobs or start a new venture. We contribute to a nascent literature examining the economic consequences of NCAs by considering how weakening the enforceability of NCAs is an external enabler of high-growth entrepreneurship (HGE). We show that such institutional changes enable HGE through three mechanisms: compression, conservation, and resource expansion. We empirically test and find supporting evidence using a large nested panel dataset and novel econometric method, staggered difference-in-differences. The causal effect of reducing NCA enforceability is economically and statistically significant.
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