Abstract:

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.