Has the increased use of non-compete clauses (NCCs) by Australian firms reduced workers’ ability to switch jobs and bargain for higher wages? We examine these questions using a detailed ABS survey of the use of NCCs and other post-employment restraints, linked for the first time to employer-employee microdata. We find that:
- Increased use of NCCs is associated with a subsequent decline in job mobility, including for job switches to firms within the same industry. By contrast, increased use of non-disclosure agreements (NDAs) — an alternative method for firms to protect trade secrets — is not associated with a significant decline in job mobility.
- Workers at firms that use NCCs extensively are paid 4 per cent less on average than similar workers at similar firms that only use NDAs. Workers at these two groups of firms start out with similar wages, but workers at NCC using firms experience slower wages growth over the first few years of their employment.
- NCCs have different associations for high- and low-skill workers. Low-skill workers see larger declines in job mobility and wages, while high-skill workers spend more time in between jobs when leaving an NCC using firm.
Some caution is warranted with these results. We confront methodological challenges and cannot completely disentangle correlation from causation. Neither do we provide a full cost-benefit analysis of NCC use. Nonetheless, our results are consistent with the view that the rising prevalence of NCC use has been a factor contributing to lower rates of job mobility and wages growth in Australia.
