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Non-Compete Agreements, Tacit Knowledge and Market Imperfections

Author

Listed:
  • Eric Bartelsman

    (Vrije Universiteit Amsterdam)

  • Sabien Dobbelaere

    (Vrije Universiteit Amsterdam)

  • Alessandro Zona Mattioli

    (Vrije Universiteit Amsterdam)

Abstract
This paper provides evidence from a natural experiment on the importance of tacit knowledge that workers have about firms’ intangible assets for competition in product and labor markets. First, evidence is presented on product and labor market imperfections across firms in manufacturing and services industries in the Netherlands. Price-cost markups and wage markups are both shown to be positively related to intangible intensity at the firm level. A model is developed of the processes of intangible investment and wage bargaining of heterogeneous firms, providing a mechanism that relates workers’ tacit knowledge to product and labor market imperfections at the firm level. The model also incorporates a role for non-compete agreements (NCAs) limiting worker mobility. Our main empirical contribution comes from using linked employer-employee panel data with information on NCAs and changes in enforceability of these agreements. Using an event-study framework, we demonstrate that the removal of NCAs leads to higher wages and worker mobility and that the effect is stronger for workers employed in intangible-intensive firms. We find that NCAs affect workers across the skill distribution and across industries. The causal findings from changes in the legality of NCAs correspond with the mechanism described in the model.

Suggested Citation

  • Eric Bartelsman & Sabien Dobbelaere & Alessandro Zona Mattioli, 2024. "Non-Compete Agreements, Tacit Knowledge and Market Imperfections," Tinbergen Institute Discussion Papers 24-055/V, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20240055
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    References listed on IDEAS

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    More about this item

    Keywords

    Price-cost markups; rent sharing; technology; tacit knowledge; non-compete agreements;
    All these keywords.

    JEL classification:

    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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