Employment Restrictions on Resource Transferability and Value Appropriation from Employees

Authors:

Natarajan Balasubramanian, Syracuse University
Evan Starr, University of Maryland
Shotaro Yamaguchi, University of Maryland


Journal:
Strategic Management Journal


Summary:

Post-employment restrictions such as non-compete agreements are bundled together with other such restrictions, and such bundling appears to be associated with lower earnings for employees with low bargaining power.

Research Questions:

(1) How common are non-disclosure, non-recruitment, non-solicit and non-compete agreements? Do they tend to be jointly or separately adopted? 
(2) How do resource access and protection-related factors, such as state policies on NCA enforceability and IDD, relate to the set of restrictions firms adopt? 
(3) How do different sets of restrictions relate to value appropriation from workers?

What We Know:
R. The FTC recently banned non-compete agreements after more than a decade of research that showed that such agreements were associated with lower wages for many workers. However, non-competes are just one of many restrictions, and we don't have much empirical evidence on other restrictions.

Novel Findings:

(1) When firms adopt restrictions, they tend to adopt either all four restrictions or only a non-disclosure agreement. 
(2) Adoption of all restrictions is more likely when workers have access to valuable resources, non-competes are more enforceable, and states adopt the inevitable disclosure doctrine. 
(3) Employees with all restrictions earn 5.4% less than employees with only non-disclosures, with this effect being driven by workers with low bargaining power.

Full Citation:

Balasubramanian N., Starr E. and Yamaguchi, S. Employment Restrictions on Resource Transferability and Value Appropriation from Employees. Forthcoming at the Strategic Management Journal.

Abstract:

We examine the joint adoption of four employment restrictions that limit firm resource outflows—non-disclosure, non-solicitation, non-recruitment, and non-compete agreements—and their associations with value appropriation from employees. Using novel individual- and firm-level survey data, we find that when firms adopt restrictions, they tend to adopt either all four restrictions or only a non-disclosure agreement. Adoption of all restrictions is more likely when workers have access to valuable resources, non-competes are more enforceable, and states adopt the inevitable disclosure doctrine. Employees with all restrictions earn 5.4% less than employees with only non-disclosures, with this effect being driven by workers with low bargaining power. Analyses of earnings and a single restriction (e.g., only non-competes) yield opposite results from those considering joint adoption, likely because of selection.