Appropriated Growth

We assess how labor mobility affects intangible investment through the lens of a structural model that features knowledge spillovers and an agency conflict between investors and key employees. Our calibration to US data targets responses of employee turnover and firms' intangible investment to variation in workers' outside option values that are identified by state-level changes in degrees of non-compete enforcement. Counterfactual analysis finds that the current degree of restrictions on labor mobility across states is close to being optimal for both investors and workers.