Stanford Study Credits Lack of Non-Competes For Silicon Valley's Success

HughPickens.com writes Natalie Kitroeff writes at Bloomberg that a new study says the secret to Silicon Valley's triumph as the global capital of innovation may lie in a quirk of California's employment law that prohibits the legal enforcement of non-compete clauses. Unlike most states, California prohibits enforcement of non-compete clauses that force people who leave jobs to wait for a predetermined period before taking positions at rival companies. That puts California in the ideal position to rob other regions of their most prized inventors, "Policymakers who sanction the use of non-competes could be inadvertently creating regional disadvantage as far as retention of knowledge workers is concerned," wrote the authors of the study "Regional disadvantage? Employee non-compete agreements and brain drain" (PDF). "Regions that choose to enforce employee non-compete agreements may therefore be subjecting themselves to a domestic brain drain not unlike that described in the literature on international emigration out of less developed countries."

The study, which looked at the behavior of people who had registered at least two patents from 1975 to 2005, focused on Michigan, which in 1985 reversed its longstanding prohibition of non-compete agreements. The authors found that after Michigan changed the rules, the rate of emigration among inventors was twice as a high as it was in states where non-competes remained illegal. Even worse for Michigan, its most talented inventors were also the most likely to flee. "Firms are going to be willing to relocate someone who is really good, as opposed to someone who is average," says Lee Fleming. For the inventors, it makes sense to take a risk on a place such as California, where they have more freedom. "If the job they relocate for doesn't work out, then they can walk across the street because there are no non-competes."

Comments

Re:Utility vs. freedom

[mi]

It's only freedom if both parties are equal in the negotiations. That is rarely the case in employment contracts.

Both parties enter into the agreement willingly, without either side being compelled — that's all, that matters.

Since a free market is, almost inherently, impossible

Huh?

it is a choice between being regulated by the more powerful of the two parties, or by an outside third party

Not at all. If you don't like the terms offered — walk away. Instead, it is being suggested, we enter into the contracts, that we do not intend to honor and then ask the "outside third party" (government) to let us weasel out.

Only one side of the contract would agree with you.

Honest people on both sides would agree with me.