New study finds that non-competes limit long term economic growth
There has long been a debate about whether non-competes stifle the formation of new tech companies and inhibit the growth of a region's economy.
This debate has been particularly heated in New England where several prominent members of the venture capital community have urged that non-competes should be abolished. Several panel discussions have been conducted in Boston during which those opposing the enforcement of non-competes have argued that the Massachusetts tech economy has fared poorly in competition with California because of the two states' differing laws on non-competes. In Massachusetts, non competes are generally enforced and in California, non-competes are generally not enforced.
Non-compete opponents have argued that each successful tech company creates or "breeds" new companies with a multiplier effect as time passes. Non-competes, according to this argument, dampen or limit this growth because those seeking to form a new company will move to a state like California to start a new company and avoid the application of a non-compete. A proposal to alter Massachusetts non-compete law apparently has been prepared and submitted to the Massachusetts Governor.
A new study by two economists, Covenants Not to Compete, Labor Mobility, and Industry Dynamics, analyzed the rise of tech jobs and companies along Route 128 in Boston in the 1950s and 1960s and the region's subsequent slow down relative to the Silicon Valley in the 1970s and 1980s. Using a mathematical model to compare growth in the two areas, the economists conclude that non-competes can help a region get established but limit its growth in the long run. This study was published in the Journal of Economics & Management Strategy, Vol.17, Issue 3, pp. 581-606 Fall 2008. (I haven't been able to locate the study on the internet but it appears as if you can order a copy for a fee from the Social Studies Research Network).
In Colorado, there doesn't appear to be a ground swell of support for adopting the California model for non-competes. Nonetheless, the ongoing debate in Massachusetts demonstrates how things may change.
