Knowledge that Transforms

I study regulation of noncompete employment contracts, assessing the trade‐off between restricting worker mobility and encouraging firm investment. I develop an on‐the‐job search model in which firms and workers sign dynamic wage contracts with noncompete clauses and firms invest in their workers' general human capital. Employers use noncompete clauses to enforce buyout payments when their workers depart, ultimately extracting rent from future employers. This rent extraction is socially excessive, and restrictions on these clauses can improve efficiency. The optimal regulation policy is characterized. In an application to the managerial labor market using a novel contract data set, I find the optimal policy to be quantitatively close to a ban.

Increasing mother’s labor supply during a child’s preschool years may reduce time investments, yielding a negative direct effect on midchildhood and teenage outcomes. But as mother’s work hours increase, income will rise. Can income compensate for the negative effect of hours? Our mediation analysis exploits exogenous variation in both mother’s hours and family income. Results suggest a negative, insignificant direct effect from increasing mother’s hours on child test scores. However, the positive mediating effect of income creates a positive total effect on test scores (26% of a standard deviation) for a 10-hour increase in mother’s weekly hours in preschool years.

This paper studies learning among coworkers when incentives change. We use a simple principal-agent model to show that when workers are not fully informed on the global shape of the production function, (1) their effort choice changes over time as information is disclosed and processed and (2) changing incentives can trigger this learning process. We test this prediction using personnel data from an egg production plant in Peru. Exploiting a sudden change in the contract parameters, we find that workers learn from each other over the shape of the production function. This adjustment process is costly for the firm.