Tuesday, May 16, 2017

The Growth Of Employee Non-Compete Clauses Has Big Impact On Labor Market

This article (via Manan Shukla) describes the increased use of non-compete clauses and their impact on the labor market and on new business formation.  In 2014 around 20% of employees were bound to a non-compete clause. That is a huge change from their former use to restrict the options of top managers or key technical personnel.  That is another signal about the direction of the US economy.  It has become a knowledge intensive economy.  Its understandable why employers would take legal actions to retain valuable employees.  Moreover, they make the labor market less competitive.  That is not so good for employees.  They restrict their options in the labor market. That reduces growth in wages while increasing business profits.  It also has the effect of reducing new business start ups.  Employees restricted by non-compete clauses are less likely to leave their employer to start up new businesses which are usually more innovative than mature firms and more likely to hire new workers.

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