Testimony prepared for the
U.S. Senate Committee on Banking, Housing, and Urban Affairs,
Subcommittee on Economic Policy
for a hearing titled “Banning Noncompete Agreements:
Benefits for Workers, Businesses, and the Economy”
Heidi Shierholz, Ph.D.
President, Economic Policy Institute
July 30, 2024
Chair Warren, Ranking Member Kennedy, and members of the subcommittee, thank you for theopportunity to testify today on the benefits to workers, businesses, and the economy of banningnoncompete agreements.
My name is Heidi Shierholz, and I am an economist and the president of the Economic Policy
Institute (EPI) in Washington, D.C. EPI is a nonprofit, nonpartisan think tank created in 1986 to
include the needs of low- and middle-wage workers in economic policy discussions. EPI conducts
research and analysis on the economic status of working America, proposes public policies that
protect and improve the economic conditions of low- and middle-wage workers, and assesses
policies with respect to how well they further those goals. I previously served as Chief Economist at
the U.S. Department of Labor during the Obama administration.
Noncompete agreements are clauses in employment contracts that prevent workers from going towork for, or starting, a competing business within a certain period of time after leaving a job. Under
the Federal Trade Commission’s (FTC’s) noncompete ban, employers will be barred from asking any
new workers to sign noncompetes, and existing noncompetes would be made unenforceable forthe vast majority of workers. Today I will highlight the importance of the rule by discussing theubiquity of noncompete agreements and describing the effects these agreements have on wages,
business formation, economic dynamism, labor mobility, productivity, innovation, and prices. I will
also discuss options firms have to protect trade secrets without noncompetes, and the FTC’s
authority to ban noncompetes.
Noncompetes are widely used
Noncompete agreements are ubiquitous. Many studies of workers find that roughly one in five
workers are subject to noncompete agreements (see for example Starr, Prescott, and Bishara(2020); Balasubramanian, Starr, and Yamaguchi (2023); and Rothstein and Evan Starr (2021)).1
My 2019 study with Alexander Colvin finds that more than one out of every four workers is subject tononcompete agreements. Using a 2017 survey of a random sample of private-sector businesses
Evan P. Starr, J.J. Prescott, and Norman D. Bishara, “Noncompete Agreements in the U.S. Labor
Force,” Journal of Law and Economics 64, no. 1 (October 2020); Natarajan Balasubramanian, Evan Starr, andShotaro Yamaguchi, “Employment Restrictions on Resource Transferability and Value Appropriation from
Employees,” January 2023; Donna S. Rothstein and Evan Starr, “Mobility Restrictions, Bargaining, and Wages:
Evidence from the National Longitudinal Survey of Youth 1997,” November 2021.
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with 50 or more employees, Colvin and I found that almost half (49.4%) of businesses required atleast some employees to sign a noncompete agreement and almost one-third (31.8%) indicatedthat all employees were required to accede to a noncompete as a condition of employment. Basedon these data, we estimate that at least 27.8% are subject to noncompete agreements. 2 The higher
share subject to a noncompete found in this survey compared with the other surveys cited above
could be due to the fact that ours was a survey of business establishments, while the others are
surveys of individual workers. While businesses know whether their workers are subject tononcompete agreements, workers are often asked to sign a noncompete on the first day of workwhen they are dealing with a great deal of administrative paperwork, and as a result often do notknow or remember they are covered by a noncompete until they try to leave their job, and thus arelikely to underreport being subject to them.
It is important to note that noncompete agreements are not limited to high-wage workers inknowledge-sensitive occupations and industries. My 2019 research with Alexander Colvin foundthat more than a quarter (29.0%) of private workplaces that had an average wage of less than
$13.00 per hour used noncompete agreements for all their workers.3 Michael Lipsitz and Evan Starr(2021) note that “while [noncompetes] are frequently assumed to occur only in high-wage jobs…wefind that the modal worker bound by a [noncompete] is paid by the hour, with median wages of$14.”4 And in their analysis of private-sector workers in 2017–2018, Rothstein and Starr (2021)
reported that 14.4% of workers who earned less than the equivalent of $20 per hour and 14.7% ofworkers with less than a college degree had signed a noncompete agreement (compared with21.7% for those earning more than $20 per hour and 24.3% of college graduates).5
As noted by Starr, Prescott, and Bishara (2020)—who found that 13.3% of labor force participants
who earned less than $40,000 per year in 2017 reported that they were subject to a noncompeteagreement—“the frequency of noncompetes among low-wage employees without access to trade
secrets and the lack of negotiation in the contracting process hint at more anticompetitive
rationales for the use of noncompetes by employers.”6
Noncompetes lower wages
To understand the impact of noncompetes on wages, it is useful to remember that essentially the
only source of leverage an individual nonunionized worker has with respect to their employers istheir ability to quit and take a job somewhere else. That ability means their employer has to provide
a job that is competitive enough in terms of compensation, working conditions, and opportunities
that the worker is not incentivized to leave to take another job or start their own business.
Noncompetes cut that source of leverage off at the knees. When workers do not have the freedom
Alexander J.S. Colvin and Heidi Shierholz, Noncompete Agreements: Ubiquitous, Harmful to Wages and toCompetition, and Part of a Growing Trend of Employers Requiring Workers to Sign Away Their Rights,
Economic Policy Institute, December 2019.
3
Ibid.
4
Michael Lipsitz and Evan Starr, “Low-Wage Workers and the Enforceability of Noncompete
Agreements,” Management Science 68, no.1, April 2021.
5
Donna S. Rothstein and Evan Starr, “Mobility Restrictions, Bargaining, and Wages: Evidence from the
National Longitudinal Survey of Youth 1997,” November 2021.
6
Evan P. Starr, J.J. Prescott, and Norman D. Bishara, “Noncompete Agreements in the U.S. Labor
Force,” Journal of Law and Economics 64, no. 1, October 2020.
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to take another job, or start a business, in their line of work in their community, their employers
simply don’t have to pay them as much or treat them as well.
A large and growing body of research bears this out. For example, using data from the Survey ofIncome and Program Participation, Evan Starr (2019) finds that an increase in enforcement of statenoncompete laws (from nonenforcement to an average state’s level of enforceability) is associatedwith a 4% decrease in hourly wages.7 Further, an analysis by Michael Lipsitz and Evan Starr (2021)
of wage trends in Oregon after the state banned noncompete agreements found that wages for all
hourly workers increased by 2–3% on average.8
It is worth noting that these studies show that noncompetes don’t just lower the wages of thosesubject to noncompetes, they also lower wages of workers who have not signed such agreements.
As described below, noncompetes decrease entrepreneurship and new firm entry, which increases
local labor market concentration and depresses wages. Further, noncompetes make labor markets“thinner,” reducing the likelihood of a successful employer-employee match and driving down
equilibrium wages.
An analysis of data of the Noncompete Survey Project by Evan Starr, Justin Frake, and Rajshree
Agarwal (2019) presents evidence that confirms this logic. Starr, Frake, and Agarwal “find that instate-industry combinations with a higher incidence and enforceability of noncompetes, workers–
including those unconstrained by noncompetes–receive relatively fewer job offers, have reduced
mobility, and experience lower wages” (emphasis added).9
Noncompetes also appear to exacerbate racial and gender wage gaps by exerting larger wage
effects on women and black men than on white men.10
Long-run wages and employee training
Some have suggested that without noncompetes, firms will abandon investments in employee
training and as a result, workers’ wages will be lower in the long run. While evidence is mixed onwhether noncompetes are associated with more training, it is worth noting that one reason
noncompetes might lead to more training is that they shrink the pool of available workers with
relevant experience, so employers are forced to hire less experienced workers that require moretraining. Evidence also suggests that on net, any gains in long-term wages workers may receivefrom additional training in a noncompete regime is more than offset by the wage suppressing
effects of the noncompetes themselves. Balasubramanian et al (2020) find that individuals who

Evan Starr, “Consider This: Training, Wages, and the Enforceability of Covenants Not to Compete,” ILR
Review 72, no.4, August 2019.
8
Michael Lipsitz and Evan Starr, “Low-Wage Workers and the Enforceability of Noncompete
Agreements,” Management Science 68, no.1, April 2021.
9
Evan Starr, Justin Frake, and Rajshree Agarwal, “Mobility Constraint Externalities,” Organization Science 30,
no. 5, July 2019.
10
Matthew S. Johnson, Kurt Lavetti, and Michael Lipsitz, “The Labor Market Effects of Legal Restrictions on
Worker Mobility,” National Bureau of Economic Research Working Paper no. 31929, December 2023.
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start a job in a state that enforces noncompetes see lower earning lasting over at least 8 years,
compared to those who start a job in a state that doesn’t enforce noncompetes.11
It is also worth noting that employers who provide jobs with competitive wages, working conditions,and opportunities do not have to worry that their employees will defect to competitors en masse
shortly after they receive valuable training.
Noncompetes reduce business formation, dynamism, labor mobility, productivity, andinnovation
Some claim that though noncompetes reduce wages, they are still necessary because they boost
innovation by incentivizing firms to invest in developing important advancements by reducing theability of their workers to take valuable information about those advancements to a competitor.
However, the best evidence consistently finds that on net, the effect of noncompetes on innovation
is in the opposite direction.
By preventing workers from leaving their employers to create new businesses, noncompeteagreements reduce business formation, reducing dynamism in the economy. An analysis based on
the findings in Jeffers (2024)12 shows that banning noncompetes will increase the rate of new
business formation by 2.7%, which, in the U.S. economy, would translate into an additional roughly
8,500 new businesses annually.
Noncompete agreements also reduce job mobility—i.e., they keep workers locked in jobs—and, asa result, they reduce productivity growth by blocking the efficient reallocation of labor from lessproductive to more productive job matches. For example, Johnson et al (2023) finds that
noncompete agreements cause a significant decrease in job-to-job mobility.13 Eliminating
noncompete agreements will allow workers to find firms, and firms to hire workers, that yield themost productive matches.
Declines in business formation and labor mobility as a result of noncompetes contribute to an
overall decline in innovation. A study by Johnson, Lipsitz, and Pei (2023), finds that an average-sized
increase in the enforceability of noncompetes leads to an 11%-19% reduction in patenting—including reductions in “breakthrough” inventions—over the following 10 years.14 Based on thisresearch, it is estimated that banning noncompetes will lead to more than 17,000 patents eachyear. Other research, for example Reinmuth and Rockall (2024), also find that noncompetes have a

Balasubramanian, Natarajan, Jin Woo Chang, Mariko Sakakibara, Jagadeesh Sivadasan, and Evan Starr.
“Locked in? The enforceability of covenants not to compete and the careers of high-tech workers.” Journal of
Human Resources, April 2020.
12
Jessica Jeffers. “The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship.”
The Review of Financial Studies, July 2024.
13
Matthew S. Johnson, Kurt Lavetti, and Michael Lipsitz, “The Labor Market Effects of Legal Restrictions on
Worker Mobility,” National Bureau of Economic Research Working Paper no. 31929, December 2023.
14
Matthew S. Johnson, Michael Lipsitz, and Alison Pei, “Innovation and the Enforceability of Noncompete
Agreements,” National Bureau of Economic Research Working Paper no. 31487, July 2023.
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significant negative impact on patenting and innovation by “reducing labor mobility as a channel ofidea diffusion that increases overall innovation.”15
Banning noncompetes will reduce inflation
While eliminating noncompete agreements will raise wages, the net effect will likely be
to reduce prices paid by consumers. Noncompete agreements increase concentration in themarkets for goods and services by preventing workers from leaving their employers to create new
businesses or join other firms that can increase the market supply and intensify competition.
Banning noncompete agreements will reduce market concentration, thereby reducing market
prices.
Noncompete agreements also reduce productivity growth by blocking the efficient reallocation oflabor from less productive to more productive job matches. Eliminating noncompete agreements
will allow workers to find firms, and firms to hire workers, that yield the most productive matches.
The increased firm and economywide productivity will reduce consumer prices.
One area where direct evidence is available on the price effects of noncompetes is around theeffect of noncompetes on prices in health care. Research shows that noncompetes significantly
increase the cost of physician services (in particular, a 10% increase in the enforceability ofnoncompetes causes 4.3% higher physician prices).16 Based on that research, the FTC estimatesthat banning noncompetes will reduce health care costs by at least $74 billion over the next
decade.
Noncompetes are often bundled with other restrictive contracts
Employers who require their workers to sign noncompete agreements are more likely to require
their workers to sign additional restrictive contract provisions. My research with Alexander Colvinfinds that over half of firms that require noncompetes for at least some of their employees also
require at least some employees to agree to mandatory arbitration.17 Further, Balasubramanian,Starr, and Yamaguchi (2023, Table 2) analyzed data from the 2017 version of Payscale.com’s annual
firm-level survey of publicly traded in the United States and found that almost one in four firms
used noncompete agreements together with nondisclosure agreements, nonsolicitationagreements, and nonrecruitment agreements for all employees, while more than half used all fourtypes of agreements for at least some of their employees.18
The reflexive bundling of noncompetes with mandatory arbitration, nondisclosure, nonsolicitation,and nonpoaching agreements provides further evidence that the primary purpose of noncompetes

Kate Reinmuth and Emma Rockall, “Innovation through Labor Mobility: Evidence from Noncompete
Agreements,” May 2024.
16
Naomi Hausman and Kurt Lavetti, “Physician Practice Organization and Negotiated Prices: Evidence fromState Law Changes,” American Economic Journal: Applied Economics, Vol. 13, No. 2, April 2021.
17
Alexander J.S. Colvin and Heidi Shierholz, Noncompete Agreements: Ubiquitous, Harmful to Wages and toCompetition, and Part of a Growing Trend of Employers Requiring Workers to Sign Away Their Rights,
Economic Policy Institute, December 2019.
18
Natarajan Balasubramanian, Evan Starr, and Shotaro Yamaguchi, “Employment Restrictions on Resource
Transferability and Value Appropriation from Employees,” January 2023.
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is often to restrict employee options rather than being a tailored strategy for protecting beneficial
investments in and information held by employees.
Relatedly, and as John Lettieri highlighted while employed at the American Enterprise Institute,workers often enter into noncompete agreements after little or no bargaining with their employer
and without full information about the rights they are signing away:
The vast majority of noncompete agreements are not subject to any negotiation between
the employer and employee, suggesting that the employee is unlikely to receive any benefits
in return for their signature. A large share of these agreements are presented for signature
only after the employee has already accepted the job offer—often on the first day of work.
Employers frequently exploit workers’ lack of knowledge and resources when crafting
noncompetes. For example, employers commonly request that workers sign noncompetes
even in states where they are completely unenforceable—and workers nevertheless sign
the agreements assuming they are valid. Likewise, employers often craft extremely broad
provisions knowing that employees generally lack both an understanding of what is
enforceable and the wherewithal to challenge the terms in court. 19
Employers who need to protect trade secrets have other options
Employers do not need noncompete agreements in order to protect trade secrets. California, forexample, made noncompete agreements unenforceable in 1872, but the state has still become a
global technology hub—something that would be difficult to imagine if businesses in California
faced misappropriation of trade secrets and other confidential information at a meaningfully higher
rate than in other states.
That is because there are intellectual property laws that provide businesses with significant legal
protections for trade secrets. Further, employers are still able to use tailored nondisclosure andnonsolicitation agreements. Policies like these, that directly address what employees may and may
not do with company secrets, allow businesses to protect trade secrets while not harming
competition by taking away workers’ freedom to seek other work or to start a business after theyleave their job.
And of course, employers concerned about worker departure and the associated loss of firmknowhow and knowledge can retain staff by paying fair wages and salaries and treating them withrespect. Many employers do not use noncompete clauses and have had no difficulty keeping
employees using these salutary methods.
The broad-based nature of the FTC’s rule is important
The FTC’s rule is a complete ban on new noncompetes for nearly all workers, including independent
contractors and senior executives, while existing noncompetes for the vast majority of workers will
no longer be enforceable (a key exception is senior executives, for whom already-existing
noncompetes will be allowed to remain in force—this group represents less than 1% of all workers).

John W. Lettieri, A Better Bargain: How Noncompete Reform Can Benefit Workers and Boost Economic
Dynamism, American Enterprise Institute, December 2020.
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Some have questioned whether it is reasonable to ban noncompetes for senior executives or otherhighly paid workers, who may be particularly likely to have confidential information. But as
mentioned above, employers do not need noncompete agreements to protect trade secrets,
because they have other options. And while senior executives or other highly paid workers are likely
in a much better position than other workers to negotiate over their full employment package—
including restrictive agreements like noncompetes—and are therefore less likely to themselves bemade worse off by noncompetes, the broader economic harms caused by noncompetes
mentioned above are still present, including reduced business formation, economic dynamism,
labor mobility, and productivity, and increased inflation. Many of these harms may in fact bestronger as a result of noncompetes among this group than among other workers, as, for example,
workers in this group may be more likely than other workers, in the absence of noncompetes, to bein the position to start a new firm, and to innovate and grow it.
It is also important that new noncompetes are banned under the rule, not just made unenforceable.
The very existence of a noncompete, even if it could not ultimately be enforced, can deter workers
from going to work for, or starting, a competing business. The high costs—financial and otherwise—of noncompete-related litigation means noncompetes create a chilling effect on new firm
formation and worker mobility that exists whether or not the noncompete would be enforced by acourt. Notably, the chilling effects of unenforceable noncompetes do not just deter workers fromgoing to work for, or starting, a competing business, they can also deter other businesses fromhiring a worker who had been working for a competitor and had signed a noncompete, due to fear of
legal complications.
FTC has the authority to ban noncompetesBusiness groups suing to block the FTC’s noncompete rule have claimed that the FTC does nothave the authority to ban noncompetes. But as a federal judge in Pennsylvania stated last Tuesday
in a decision declining to issue a preliminary injunction against the rule, “the FTC is empowered tomake both procedural and substantive rules as is necessary to prevent unfair methods ofcompetition.”20
The FTC Act states that unfair methods of competitions are illegal, and it authorizes the FTC to
issue rules and regulations to prevent their use. Further, the Supreme Court in 1986 confirmed that
the FTC can not only challenge traditional antitrust violations but can also outlaw practices “theCommission determines are against public policy for other reasons.”21 With the noncompete rule,
the FTC is doing exactly what it was empowered (and directed) to do by the FTC Act—take action,
based on the best evidence available, to protect fair competition.
Noncompetes are not trying to hide that they are contrary to open and fair competition—it’s in theirname. They bar workers from leaving to accept a position in their line of work in their community,
stifle the creation of new businesses, and depress employer competition for workers’ services.
There is a large body of evidence, described above, that noncompetes hinder competition,
Tomasz Mielniczuk and Craig Minerva, “FTC’s Noncompete Ban Survives Preliminary Challenge in
Pennsylvania Federal Court,” JD Supra, July 26, 2024.
21
Federal Trade Commission (FTC), “Section 5 of the FTC Act as a Competition Statute” (web page), October
17, 2008.
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disadvantaging consumers, workers, and competing businesses. Banning these coercive and unfair
agreements is fundamental to the FTC’s mandate.
Conclusion
In closing, it’s worth considering who wins from having noncompetes. One might believe it isbusinesses who want to protect trade secrets—but, as described above, noncompetes are notneeded for that; firms have other options for protecting their intellectual property.
A core group that does indeed benefit from noncompetes is existing firms who want to stop new
firms from forming and competing with them. Noncompetes strongly benefit those incumbent firms
who want to protect their advantage, but they make it harder for new firms to start, grow, andinnovate, and, as a result, they are bad for consumers and the overall economy, both of which
benefit from competition and innovation.
Another group that benefits from noncompetes is existing firms who want to prevent other firms
from being able to hire away their workers by offering them higher wages, better working conditions,and better opportunities. Noncompetes clearly benefit those incumbent firms, but are harmful toworkers and the overall economy, both of which benefit from employer competition for workers’
services.
Given all this, it is not a surprise that groups representing existing businesses are fighting toothand-nail to keep their ability to require workers to sign noncompetes. That, however, does not mean
noncompetes are good for the nation. In fact, noncompetes are bad for economic dynamism andinnovation, they depress business formation and labor mobility, they hurt productivity and growth,
they raise prices, they shrink for workers’ wages, and they restrict workers’ freedom. Banning these
coercive and unfair agreements is fundamental to the FTC’s mandate, and the workforce,
consumers, and the broader economy will be better off for it.
Thank you for holding this important hearing and I look forward to your questions.

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