This paper studies the labor market effects of Non-Compete Agreements (NCAs) that constrain employee mobility, in a search model featuring random hiring and endogenous separation. Non-compete clauses limit workers’ job opportunities; thus, an unemployed worker who is bound by NCAs has a lower job finding rate relative to the unconstrained worker. Moreover, since NCAs encourage firm investment through the lengthening of job tenure, firms prefer to include them and are incentivized to create vacancies for jobs that have a higher probability of including NCAs in their contracts. Hence, the average job finding rate increases with the incidence of NCAs through increased labor market tightness. Conversely, a higher incidence of NCAs also increases the proportion of job seekers that are constrained by NCAs, making job vacancies more difficult to fill. Therefore, the average job finding rate drops through decreasing labor market tightness. Calibrated to the US economy, the model implies a decreasing job finding rate with the incidence of NCAs, consistent with the evidence found in US data. This fact appears as a trade-off for a lower job separation rate and higher firm investment in worker human capital implied by a higher incidence of NCAs. In equilibrium, the model predicts a higher unemployment rate associated with a higher incidence of enforceable NCAs in the economy. In addition, the paper shows that a restriction on the duration of NCAs is welfare improving.
This paper considers labor-market duality between temporary and permanent employment contracts as a source of life-cycle heterogeneity in worker flows. Using panel data from the French Continuous Employment Survey, we estimate that the transition probabilities from unemployment to temporary (UT) and permanent (UP) employment have a declining profile over the life cycle for high-education workers but a flat profile for low-education workers. The same is observed for the transition probability from temporary to permanent employment (TP). We show that a search-and-matching model with heterogeneous workers and jobs, information frictions and Bayesian learning about worker ability, and match-specific unemployment risk can replicate these facts. Bayesian learning is relatively more prevalent for high-education workers, whereas unemployment-risk heterogeneity is the key driver of life-cycle variation in worker flows for the low-educated. We assess the implications of the model for the effect of temporary contracts and firing costs on employment, mismatch and aggregate productivity, and the life-cycle dynamics of earnings.
This paper examines the macroeconomic effects of climate policies in the presence of financial frictions. Climate policies analyzed are the carbon tax and green financing, a policy that aims to reallocate capital toward environmentally friendly firms. When firms are financially constrained, the imposition of carbon tax helps reallocate capital from low-productive firms to high-productive firms by increasing the production cost. High-productive firms produce more but also engage in emissions abatement to reduce the carbon tax burden, incentivized by green financing. As a result, emissions decrease, but aggregate productivity and output increase, breaking the positive emissions-output relationship. However, the paper shows that the outlined positive effect of the carbon tax depends on the aggregate response of financing to firm environmental performance.