The use of non-compete agreements in the Italian labour market

Lorenzo Giovanni Luisetto (University of Michigan Law School )
TIto Boeri (Bocconi University, CEPR, IZA and fRDB)
Andrea Garnero (OECD and IZA)

Abstract

An increasing body of evidence shows that firms have some degree of monopsony power over workers, which allows them to set wages below labour productivity levels and hire less employees than in a competitive environment. There are many possible sources of monopsony power, ranging from market concentration, to employers’ collusion, to the use of various provisions limiting workers’ mobility, to ‘search costs’ and labour market frictions.
In this paper, we focus on ‘non-compete’ agreements in employment contracts. A non-compete agreement is a contract, or a clause of a contract, where an employee agrees to not compete with an employer after the employment period is over. In most countries, non-compete agreements are lawful (under certain conditions) and justified by the need to protect trade secrets and specific investment in the employment relationship by the employer (such as certain types of training and investment in knowledge). However, non-compete clauses can also be used to restrict workers’ mobility as such, therefore limiting their outside options and bargaining power.
Building on the growing evidence on the use of non-compete clauses in the United States, this paper provides the first comprehensive panorama on non-compete clauses in Italy, with an analysis of the regulatory framework and an empirical assessment based on a representative survey of 2,000 private sector employees.

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