This episode breaks down what non-compete agreements are and why they’ve become such a hot topic in labor economics. Matt and Jadrian explore when these contracts make sense and when they might go too far. They weigh the trade-offs between protecting company investments and limiting worker mobility, while also digging into recent policy debates and what non-competes mean for innovation and entrepreneurship.
In this episode, we talk about:
What non-compete agreements are and why companies use them
Whether it’s reasonable to restrict employees from working for competitors
The fairness (or unfairness) of non-competes after leaving a job
The role of non-competes in limiting job mobility and career growth
State-level bans and the brief FTC attempt to outlaw non-competes nationally
Whether non-competes function similarly to patents in protecting investments
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This Week’s Drinks 🍻
This week featured a couple of solid, no-nonsense beer picks. Jadrian went with a Sam Adams Cold Snap White Ale, a citrusy, spiced brew with clementine and orange peel that paired perfectly with chips and homemade salsa. Matt opted for a Founders Centennial IPA, a go-to choice that balances quality with value. Nothing says economist like getting a 15-pack for the price of a 12. Classic Matt.
Name That Stat 📊
This week’s stats covered two very different corners of the economy. Matt brought in the surprisingly large number of Bitcoin ATMs in the U.S. after spotting one at a gas station. Jadrian followed up with a stat tied to last week’s conversation, showing that households spend about 5% more on groceries when men do the shopping compared to women.
Show Notes
Non-compete agreements sound simple at first: you work for a company, and in return, you agree not to work for their competitors. But the reality is much more nuanced. There are two main types: those that apply while you’re employed and those that extend after you leave. The first type makes a lot of intuitive sense. If you’re working for a company, it’s reasonable they don’t want you splitting time or sharing insights with competitors.
Things get trickier with post-employment non-competes. On one hand, companies invest real resources into training employees and developing proprietary knowledge. From that perspective, it makes sense to protect that investment. It’s similar to how patents give firms time to profit from innovation before competitors can copy their ideas. But on the other hand, restricting workers after they leave can limit career opportunities and slow down the natural movement of talent in the economy.
There can be some vagueness to these agreements that make the situation even stickier. Saying “you can’t work for a competitor” sounds straightforward, but defining a competitor isn’t always obvious. Is LinkedIn a competitor to a job board? Is Google? Without clear boundaries, these agreements can create uncertainty and risk for workers trying to make career moves.
Non-competes may reduce job mobility, which is generally seen as healthy for both workers and firms. There’s also the argument that they suppress entrepreneurship. If people can’t leave to start competing businesses, fewer new ideas make it to market. While some claims (like thousands of startups being lost each year) may be overstated, the underlying concern is real.
So, do the benefits of non-competes outweigh the economic costs? We’re in another familiar space for economists: it depends. Non-competes can be reasonable in some contexts, but they can also be overused or abused. The challenge is likely in balancing incentives for firms with freedom for workers.
Have you ever been subject to a non-compete agreement? If so, did it actually change how you approached your next job search or the opportunities you considered?
Pop Culture Corner 🍿
This week’s topic stumped us at first. We couldn’t quickly name a pop culture tie-in for non-competes. After a quick search, we found a great example from Hacks, where Deborah’s non-compete agreement becomes a major plot point. You can see what led up to that moment here:
We usually stick to movies, TV, and music, but this time we’re also throwing in a real-world pop culture moment. A quick search reminded us of the famous story of Conan O’Brien navigating a non-compete agreement with NBC in 2010. It’s a good example of how these contracts can play out on a very public stage.
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