Ep. 105: Noncompetes and the spread of ideas

In 2024, the Federal Trade Commission (FTC) issued a rule banning most noncompete agreements nationwide, arguing that greater worker mobility would foster new business creation and raise workers' earnings. The rule was later vacated, but it brought renewed attention to a longstanding debate over the economic effects of noncompetes. Supporters of noncompete agreements contend that these restrictions encourage firms to invest in new ideas by preventing employees from taking proprietary knowledge to competitors. In a paper in the American Economic Journal: Applied Economics, authors Kate Reinmuth and Emma Rockall examine the effect of noncompetes on innovation, using 26 changes in state-level noncompete enforceability between 1991 and 2016. They find that an average-sized increase in enforceability reduced patenting by about 14 percent after five years, with larger declines among the most novel patents and venture-backed firms. Reinmuth and Rockall recently spoke with Tyler Smith about the arguments for and against noncompetes, how they isolated the causal effect of enforceability on innovation, and what their findings imply for policymakers.

Intimate partner violence, or IPV, refers to physical, sexual, or emotional abuse and controlling behavior by a current or former partner. Women bear a disproportionate share of the burden of IPV worldwide—roughly one in three women experience IPV in their lifetimes—and low- and middle-income countries have a greater occurrence of IPV, with larger costs as a percentage of GDP.  In a paper in the Journal of Economic Literature, authors Manisha Shah and Lydia Barski surveyed the economic research on IPV and identified key findings. Shah recently spoke with Tyler Smith about how to measure IPV, the factors that drive individuals to perpetrate and enter into IPV, and the policies that are effective in reducing it.

Most firms rely on managers to spot talented workers and to encourage them to move into bigger roles within the company. But managers are judged on how their own teams perform, giving them an incentive to hold on to their best people. In a paper in the American Economic Review, economist Ingrid Haegele provides the first empirical evidence that talent hoarding is prevalent and costly. Drawing on personnel records and surveys from a large European manufacturer with more than 200,000 employees, she finds that 75 percent of managers acknowledge hoarding. She says that the workers held back are disproportionately high-performing, with the effect falling hardest on women. Haegele recently spoke with Tyler Smith about how she measured talent hoarding, what it costs workers, and what firms might do about it.

In response to Russia's 2022 invasion of Ukraine, the G7 imposed a price cap of $60 per barrel on all Russian oil carried by tankers owned, insured, or serviced by Western companies. Many analysts expected the policy to backfire, with some warning that oil could reach $380 if Russia retaliated by cutting production. In a paper in the American Economic Review, authors Simon Johnson, Lukasz Rachel, and Catherine Wolfram argue that tightly enforced caps can actually raise oil output and push world prices down when factors like market power, uncertainty, and financial constraints are accounted for.  Rachel and Wolfram recently spoke with Tyler Smith about why the textbook intuition on price caps fails in Russia's case and how their framework might be used to set caps in the future.

In the fifteen years following the end of World War II, Western Europe's capital account surpluses were not sufficient to finance its trade deficit with the United States. Charles Kindleberger of MIT, who helped assemble the Marshall Plan, defined this gap as the "dollar shortage" and argued that it was a structural problem rooted in Europe's lagging productivity, one that could only be fixed by sustained US lending. Milton Friedman disagreed, treating the shortage as a simple consequence of overvalued fixed exchange rates that floating currencies would correct. The argument continued through scores of books and articles written by many other economists into the late 1950s, until Europe's productivity caught up, and the debate faded. In a paper in the Journal of Economic Perspectives, authors Harris Dellas and George S. Tavlas revisit the controversy and explain why it still matters. They find that Kindleberger anticipated much of what is now called the intertemporal approach to the current account, and they trace how two recent episodes of dollar shortages echo and depart from the original.  Dellas and Tavlas recently spoke with Tyler Smith about the paper.

Since the 1990s, developers in Florida who want to build on wetlands have been required to buy offset credits from "wetland mitigation banks," private restoration projects that convert degraded land, often former pasture, back into functioning wetland elsewhere in the same region. Like other environmental offset markets, the program has proved controversial. In a paper in the American Economic Review, authors Daniel Aronoff and Will Rafey found that wetland offsets generated roughly $2.4 billion in private gains from trade but also a significant increase in overall flood damage because wetlands were moved away from places where they protected existing homes. Rafey recently spoke with Tyler Smith about what the results mean for the design of environmental markets and wetland regulations.

The place where a child grows up in America shapes their economic future to a significant degree. One long-suspected explanation is racial segregation, but proving whether segregation actually causes worse outcomes—rather than just correlating with them—has been challenging for economists. In a paper in the American Economic Journal: Applied Economics, authors Eric Chyn, Kareem Haggag, and Bryan A. Stuart provide evidence that racial segregation shapes the long-run economic prospects of American children.  Using the placement of railroad tracks in the 19th century, they found that a one standard deviation increase in segregation—roughly the gap between Minneapolis and Philadelphia—cost a Black child from a poor family about $4,200 a year in income as an adult. While lower-income Black children were hit the hardest, segregation also hurt higher-income Black children and lower-income White children. Chyn recently spoke with Tyler Smith about why segregation hurts low-income kids in particular and what his findings imply for policymakers.

More than two billion people around the world do not have safe drinking water at home. Piped water infrastructure remains out of reach for much of the developing world, and cheaper alternatives like chlorine tablets have low take-up rates even when given away for free.  In a paper in the American Economic Review, authors Fiona Burlig, Amir Jina, and Anant Sudarshan explore a third option. Working with a private company in rural Odisha, one of India's poorest states, the researchers ran a randomized experiment across roughly 60,000 households to test the effectiveness of delivering treated water directly to people's doors. Burlig recently spoke with Tyler Smith about revealed-preference measurements of the value of clean water and steps governments might take toward reaching the goal of universal access.

Asian Americans are the fastest-growing racial group in the United States and are on track to become the largest immigrant group by 2050. Yet, researchers have devoted much less attention to this population than to other immigrant groups. In a paper in the Journal of Economic Perspectives, author Hannah M. Postel helps to fill that gap. She traces Asian immigration to the United States across three policy eras—1882–1943, 1943–1965, 1965–present—and explores how they affected the characteristics of those admitted, where they settled, and what work they were allowed to do.  Postel recently spoke with Tyler Smith about the origins of the US federal immigration system, the history of Asian immigration, and how current policy might shape immigration going forward.

W. E. B. Du Bois is remembered as a civil rights leader, sociologist, and author of The Souls of Black Folk. But before he became famous for his empirical studies of Black life in America, Du Bois was a graduate student at Harvard studying cutting-edge economic theory. In 1891, at age 23, he submitted a 158-page manuscript entitled A Constructive Critique of Wage Theory to a Harvard prize competition. The manuscript sat in the Harvard archives for over a century, largely unexamined by trained economists. Author Daniel Kuehn recently requested that Harvard digitize the manuscript so that he could analyze its contents. In a paper in the Journal of Economic Perspectives, he explores how Du Bois anticipated the application of marginalist ideas in economics to the determination of wages.  Kuehn recently spoke with Tyler Smith about Du Bois's contributions to wage theory, why these contributions went unrecognized, and how his time in Berlin redirected him toward the historical and empirical work for which he is known.