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Abstract:

CEP discussion paper
Non-compete agreements, wages and efficiency: theory and evidence from Brazilian football
Bernardo Guimaraes, Joao Paulo Pessoa and Vladimir Ponczek March 2021
Paper No' CEPDP1751:
Full Paper (pdf)

JEL Classification: JEL codes: J30; J41; J60; K31; Z22


Tags: labor mobility; labor frictions; wage profile; labor turnover

We propose a model to study non-compete agreements and evaluate their quantitative effects. We explore an exogenous policy change that removed non-compete clauses in the market for Brazilian footballers, the Pele Act of 1998. The Act raised players’ lifetime income but changed the wage profile in a heterogeneous way, reducing young players’ salaries. We structurally estimate the model’s parameters by matching wages and turnover profiles in the post Act period. By changing a single parameter related to the non-compete friction, we can match the changes in the age-earnings profile. We then show that the bulk of income gains is due to distributional forces, with efficiency gains playing a minor role.