Technology firms frequently require workers to sign non-compete agreements, which typically bar their employees from joining rival companies for one to two years. These agreements keep workers from taking the knowledge and skills they have acquired and using them to help a rival company.
A study conducted by Matt Marx, assistant professor at the MIT Sloan School of Management, shows that when those workers do shift jobs, roughly one-third of them end up leaving their chosen industry, often at significant financial cost to themselves.
"People are highly constrained by non-compete agreements," says Marx. "These agreements leave them with a choice of staying where they are or taking a career detour."
Marx's study, "The Firm Strikes Back: Non-compete Agreements and the Mobility of Technical Professionals," was published in the October issue of the American Sociological Review.
Marx surveyed 1029 American engineers covering a variety of high-tech fields. He also conducted separate in-depth interviews with 52 people who worked on voice-recognition technology.
In all, Marx found that 32.6% of tech workers who sign non-compete agreements move to entirely different industries when they take their subsequent jobs. In many cases, these workers stopped applying specific skills they had developed often after obtaining a PhD and took pay cuts.
"When people take a career detour, they sometimes earn less money, lose touch with their colleagues, and their skills atrophy," Marx says.
"Although non-competes prevent people from changing jobs within a state," Marx notes, the agreements may "encourage mobility out of a state. If people can't get jobs locally, they [may] go to other states where they have that flexibility."
"Oh yeah, a non-compete"
Marx's study found that 70% of those surveyed said they were informed of the agreements after they accepted the job offer.
"Half the time it was after they showed up for work," says Marx. "On the first day, they enroll in a 401(k), set up direct deposit, and, oh yeah, are given this non-compete thing to sign."
Marx has produced convincing work "showing that there really are career effects in this area," says Olav Sorenson, a professor at the Yale School of Management, who notes there are potential benefits to firms as well from reducing use of the agreements.
"It's not a zero-sum game if you're getting a good match between employees and firms," Sorenson says. "And one of the difficulties with the non-compete agreements is that it makes it more difficult for employees to find the right firm for them."
In the economy as a whole, Sorenson adds, some highly skilled technology workers "are locked up in firms where they're not creating as much value as they could elsewhere."
To further analyze this dynamic, Marx is currently researching whether non-compete agreements affect the flow of workers within industries and whether they affect the pool of talent available to smaller companies and startup firms.
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