It would be better to regulate such agreements than to ban them outright, as the US Federal Trade Commission has proposed.
January 10, 2023 at 9:00 AM EST
Tyler Cowen is a Bloomberg Opinion columnist, a professor of economics at George Mason University and host of the Marginal Revolution blog.
Gift this article
Before it’s here, it’s on the Bloomberg Terminal Bloomberg Terminal This article is for subscribers only.Noncompete clauses, contractual provisions that prevent employees from taking jobs with rival businesses or from starting competing firms for some period of time after they leave, serve useful purposes for both workers and companies. It would be better to regulate them than to ban them outright, as the US Federal Trade Commission has proposed.
The value of noncompete clauses is easy to illustrate. Say you run a hedge fund. Many members of your trading team will have partial access to your firm’s trading secrets, and if they leave they can take those secrets with them. In the absence of noncompete agreements, firms would be more likely to “silo” information — becoming less efficient and less able to pay higher wages.
