Employee Non-compete Agreements, Gender, and the Timing of Entrepreneurship

I contribute to the literature on institutions, gender, and entrepreneurship by showing that macro-level institutional policies that do not explicitly target women disproportionately affect their ability to leverage prior professional experience in founding new ventures. Examining all workers in 24 U.S. states from 1990-2011, I find that women subject to tighter non-compete policy are 13% more likely to postpone founding rival businesses until their employers dissolve. Causality is established via a difference-in-differences model leveraging exogenous shifts in non-compete policy in three states. Regarding mechanisms, I review the gender split among 11,000 defendants in non-compete lawsuits since 2003, finding little evidence that firms target women with legal action. However, women face higher relative costs of potential litigation due both to lower cumulative earnings prior to founding entrepreneurs as well as a “re-entry” wage penalty after abandoning their startups and returning to paid employment.