Increased noncompete enforceability also led to fewer employees leaving for more senior positions—a decline of 39 basis points, or 15 percent, relative to the average departure rate. Perhaps most importantly, the number of employees leaving for start-ups dropped as well, and in turn the number of companies entering knowledge-intensive sectors such as technology and professional services declined by an estimated 18 percent.
By contrast, noncompetes significantly boosted investment at large, existing companies. Jeffers finds that stronger court enforcement consistently led publicly held companies to make bigger capital investments. The companies in Jeffers’s sample increased investment by $6,000 for every $100,000 of net capital—while companies with a high proportion of skilled employees (those most often targeted by noncompetes) increased investment by $10,000 for every $100,000 of net capital.
“These results point to an important trade-off between encouraging the entrance of new firms on the one hand and investment at existing firms on the other hand,” she notes.