A tangle of regulations has made it impossible to build enough housing in America, a problem that has been worsening for decades. The result is a nationwide shortage of millions of homes, rising housing costs, and growing pressure on federal policymakers to address an affordability crisis that is largely driven by rules set at the local level.��

Right to Build Zones (RBZs) is a new proposal designed to help municipalities unlock housing supply while preserving local control. RBZs respond to two persistent challenges that have undermined many recent attempts to reform zoning: (1) sweeping citywide changes are often stalled by a small but highly motivated opposition, and (2) successful reforms frequently get diluted by discretionary reviews, lengthy permitting processes, and regulatory poison pills.��

RBZs chart a different path. Instead of requiring broad citywide reform, they allow municipalities to designate targeted areas for deep reform where housing can be built by-right. The model is simple. Municipalities opt in. Reforms are focused where local support is strongest. Federal rewards are tied to results: for each new home permitted in the RBZ, the municipality receives a dividend. RBZs do not prescribe a specific building form; they simply remove regulatory barriers that prevent housing from being built where it is wanted.��

This paper outlines potential RBZ program designs, identifies where evidence supports clear program design choices, and identifies questions for further research and input. We are publishing this concept paper to invite feedback from the broader housing and policy community. What works? What should change? Help us build the strongest version of this idea.��

Contact Tina Lee, Manager of Housing Policy at tina@eig.org with any thoughts.

July 29, 2025

The Honorable Hal Rogers
Chair, Appropriations Subcommittee on Commerce, Justice, Science, and Related Agencies,
U.S. House of Representatives

The Honorable Grace Meng
Ranking Member, Appropriations Subcommittee on Commerce, Justice, Science, and Related
Agencies, U.S. House of Representatives

The Honorable Jerry Moran
Chair, Appropriations Subcommittee on Commerce, Justice, Science, and Related Agencies,
U.S. Senate

The Honorable Chris Van Hollen
Ranking Member, Appropriations Subcommittee on Commerce, Justice, Science, and Related
Agencies, U.S. Senate

Dear Committee Chairs, Members, and Staff:

We write as a bipartisan group of economists to urge you to safeguard the integrity of the U.S.
statistical system by investing in its modernization.

Data provided by the federal statistical system are the lifeblood of the U.S. economy. The data
fuel decision-making across every sector of the economy and in every corner of the country.
Families rely on the data to make some of life’s most monumental decisions, like purchasing a
home. Workers rely on the data to acquire skills and discover opportunities. Entrepreneurs rely
on it to start the right businesses in the right locations. Existing firms rely on it to invest in
innovation and growth. State and local governments rely on it to deliver services and build
infrastructure. Congress, the Presidency, and the Federal Reserve all count on timely, accurate,
and granular economic data to make policy for the nation.

Our statistical agencies are outstanding—steadfast and prolific producers of the most consumed
and scrutinized economic indicators in the world. The economy is changing rapidly, however.
Without focused and funded efforts to modernize how these essential statistics are collected
and produced, the quality and quantity of the system’s output are at risk.

Surveys are the bedrock of the nation’s statistical products, but response rates have been
declining for decades. Agencies need to be given the space and freedom to experiment to
restore them. At the same time, transitioning to a system in which less survey data is blended
with more administrative and private sector data, while preserving data integrity and privacy
standards, is the generationally important task facing statistical agencies today.

Quite simply, the digitization of everything calls for a re-engineering of data collection and
measurement. Such plans have existed for many years, but absent adequate funding and bold
political leadership they have remained just that—plans. Now is the time to translate them into
action.

This moment calls for investment in the U.S. statistical agencies, not retrenchment.

The public sector role in publishing statistics that provide a complete and undistorted picture of
the U.S. economy is irreplaceable. The agencies can become nimbler and more efficient by
harnessing the latest technologies and deepening partnerships with the private sector, but
private data is a complement to, not a substitute for, public statistics.

Modernized infrastructure and new collection techniques must also be built in parallel to the
uninterrupted production of mandated statistics. The parallel build is necessary not only to meet
data users’ continuous needs, but also to validate and benchmark new methods.

Most agencies have had flat or declining budgets in real terms for more than a decade. More
recent workforce reductions have brought headcounts to historic lows. These chronic and acute
challenges have combined to bring agencies to the brink of crisis. They will need both financial
resources and committed political leadership to ensure this moment of disruption lays the
groundwork for a stronger future.

Specifically, we call on Congress to grant the nation’s primary economics statistics agencies flat
or increased FY 2026 appropriations in real terms. In the case of the U.S. Census Bureau, we
call on Congress to fully fund both current and periodic surveys to ensure that base programs
get the investment they need as Decennial Census preparations proceed.

In conjunction, we call on the Executive Branch to explicitly embrace the agencies’ long-awaited
modernization plans and grant them flexibility in spending the money appropriated to them.
Statistical agencies should be trusted to procure the talent and technology they need to
accomplish their missions.

The payoff from deftly navigating this moment could be huge. The advent of artificial intelligence
(AI) promises to revolutionize how data are both produced and consumed. Efforts to make
federal data AI-ready promise to cement the nation’s advantage in this industry of the future.

On a personal note, we want to emphasize the value of the federal statistical agencies not only
as producers of data, but also as anchors of a much larger ecosystem. Many of us know federal
economists as co-authors and collaborators. Productive exchanges between us—data users in
business and academia—and experts in the statistical community are instrumental in improving
economic statistics themselves. Our ongoing collaborations regularly yield data advances and
new economic indicators or data products that benefit the whole economy. The federal
statistical advisory councils provide a natural forum for these productive exchanges, and we
would welcome the bodies’ restoration.

Critically, our statistical agencies lead the world in data innovation, not just data production. As
creators of information, they provide an essential input to our knowledge-based economy. The
work of the agencies and their staff directly contributes to the exceptional performance of the
American economy and to the quality of our public policymaking.

We urge you to invest in that innovation, invest in the needed modernization, and invest in the
information that will fuel the next great era of American economic growth. The world’s most
formidable economy deserves the world’s foremost statistical system.

Respectfully,

Aaron Sojourner, The W.E. Upjohn Institute for Employment Research
Adam Jaffe, Brandeis University
Adam Ozimek, Economic Innovation Group
Adam Posen, Peterson Institute for International Economics
Alan Blinder, Princeton University
Alan Viard, American Enterprise Institute
Barbara L. Wolfe, University of Wisconsin-Madison (emeritus)
Basit Zafar, University of Michigan
Benjamin F. Jones, Northwestern University
Betsey Stevenson, University of Michigan
Bradley Herring, University of New Hampshire
Brian Jacob, University of Michigan
Bruce D. Meyer, University of Chicago
Chad P. Bown, Peterson Institute for International Economics
Chad Syverson, University of Chicago
Charles Brown, University of Michigan
Christopher L. House, University of Michigan
Claudia Sahm, New Century Advisors
Cordelia Reimers, Hunter College & The Graduate School of CUNY (emeritus)
Daniel J.B. Mitchell, University of California, Los Angeles (emeritus)
David Autor, Massachusetts Institute of Technology
David Wilcox, Federal Reserve Board (retired)
Diane Lim
Douglas Elmendorf, Harvard University
Douglas Holtz-Eakin, American Action Forum
Elizabeth Oltmans Ananat, Columbia University
Emma Rackstraw, Swarthmore College
Emma Wiles, Boston University
Erica L. Groshen, Cornell University
Gene Grossman, Princeton University
Glenn Hubbard, Columbia University
J. Steven Landefeld, Former Director, Bureau of Economic Analysis
Jared Bernstein, Former Chair of the White House Council of Economic Advisers
Jed Kolko
Jeffrey Frankel, Harvard University
John M. Abowd, Cornell University (emeritus)
John J. Horton, Massachusetts Institute of Technology
John Sabelhaus, Brookings Institution
Joshua Goodman, Boston University
Joshua Linn
Judith Scott-Clayton, Columbia University
Justin Wolfers, University of Michigan
Karen Dynan, Harvard University
Kari Heerman, Former Acting Chief Economist, U.S. Department of State
Katharine G. Abraham, University of Maryland
Kenneth Gillingham, Yale University
Kenneth D. Simonson, Associated General Contractors of America
Kenneth Swinnerton, Georgetown University
Kevin Rinz, Washington Center for Equitable Growth
Kyle Handley, University of California, San Diego
Lee Flemming, University of California, Berkeley
Lisa Barrow
Mallick Hossain
Margaret Levenstein, University of Michigan
Mark J. Mazur, Former Assistant Secretary for Tax Policy, U.S. Department of the Treasury
Mark Kuperberg, Swarthmore College
Martin Neil Baily, Former Chair, Council of Economic Advisers
Matthew Clancy, Open Philanthropy
Michael Geruso, University of Texas at Austin
Michael W. Horrigan, The W.E. Upjohn Institute for Employment Research
Michael R. Strain, American Enterprise Institute
Miles Kimball, University of Colorado Boulder
Nathan Goldschlag, Economic Innovation Group
Nicholas Li, George Washington University
Nick Hagerty, Montana State University
Paul Romer, Boston College, Nobel Laureate
Paula R. Worthington, University of Chicago
Peter K. Schott, Yale University
Pia Orrenius
Rachel Marie Brooks Atkins, St. John’s University
Richard Schmalensee, Massachusetts Institute of Technology
Robert Seamans, New York University
Robert Litan, Former Director, Economic Studies, The Brookings Institution
Robert J. Willis, University of Michigan (emeritus)
Sandile Hlatshwayo, Former Senior Economist, Council of Economic Advisers
Sherry Glied, New York University
Stan Veuger, American Enterprise Institute
Stephen A. O’Connell, Swarthmore College
Steven B. Kamin, Former Senior Economist, Council of Economic Advisers
Steven J. Davis, Hoover Institution
Steven Ruggles, IPUMS, University of Minnesota
Susan Helper, Former Chief Economist, U.S. Department of Commerce
Teresa Fort, Tuck School at Dartmouth
Timothy Simcoe, Boston University Questrom School of Business
Timothy M. Smeeding, University of Wisconsin-Madison
Victor Bennett, Former Senior Economist, Council of Economic Advisers
Warren Whatley, University of Michigan (emeritus)

Cc:

The Honorable Howard Lutnick, Secretary, U.S. Department of Commerce
The Honorable Lori Chavez-DeRemer, Secretary, U.S. Department of Labor
The Honorable Kevin Hassett, Director, National Economic Council
The Honorable Susan Collins, Chair, Senate Committee on Appropriations
The Honorable Patty Murray, Vice Chair, Senate Committee on Appropriations
The Honorable Tom Cole, Chair, House Committee on Appropriations
The Honorable Rosa DeLauro, Ranking Member, House Committee on Appropriations
The Honorable Bill Cassidy, Chair, Senate Committee on Health, Education, Labor, and
Pensions
The Honorable Bernie Sanders, Ranking Member, Senate Committee on Health, Education,
Labor, and Pensions
The Honorable Shelley Moore Capito, Chair, Senate Committee on Appropriations
Subcommittee on Labor, Health and Human Services, Education, and Related Agencies
The Honorable Tammy Baldwin, Ranking Member, Senate Committee on Appropriations
Subcommittee on Labor, Health and Human Services, Education, and Related Agencies
The Honorable Josh Hawley, Committee on Homeland Security and Governmental Affairs
Subcommittee on Disaster Management, District of Columbia, and Census
The Honorable Andy Kim, Ranking Member, Committee on Homeland Security and
Governmental Affairs Subcommittee on Disaster Management, District of Columbia, and
Census
The Honorable Robert Aderholt, Chair, House Committee on Appropriations Subcommittee on
Labor, Health and Human Services, Education, and Related Agencies
The Honorable Eric Burlison, Chair, Committee on Oversight and Government Reform
Subcommittee on Economic Growth, Energy Policy and Regulatory Affairs
The Honorable Maxwell Frost, Ranking Member, Committee on Oversight and Government
Reform Subcommittee on Economic Growth, Energy Policy and Regulatory Affairs
The Honorable Rick Allen, Chair, Committee on Education and the Workforce Subcommittee on
Health, Employment, Labor and Pensions
The Honorable Mark DeSaulnier, Ranking Member, Committee on Education and the Workforce
Subcommittee on Health, Employment, Labor and Pensions

Summary

The United States has benefited tremendously from skilled immigration. Newcomers have long accounted for outsized shares of new startups and patents and, by one estimate, were responsible for 30 to 50 percent of all productivity growth between 1990 and 2010. Yet the enormous benefits of skilled immigration are not reaching many communities across the heartland. Just as America's innovation ecosystem has tightly concentrated in a handful of places–nearly 70 percent of patents come from just 100 U.S. counties–skilled immigrants are tightly clustered in coastal "superstar" metros.��

But history need not be destiny. Instead, talented workers and entrepreneurs could be key catalysts for reversing the devastating effects of deindustrialization in regions across the country, if such communities had a new tool to recruit them.

The Heartland Visa is an innovative proposal that gives communities the choice to opt-in to a new immigration pathway for highly skilled workers, entrepreneurs, and innovators. Prioritizing higher-earning applicants and those with local ties, the Heartland Visa would serve as a key component of economic revitalization in participating places.��

In exchange for living in a Heartland Visa community, workers with sufficient earnings will gain permanent residency, cutting through burdensome red tape and bureaucracy embedded in the status quo immigration system. Building on our 2019 concept paper, this report details how we can make Heartland Visas a reality on the ground.

Key Features of a Heartland Visa

• Dual opt-in: Counties experiencing economic decline or stagnation can decide to opt in or out of the program, while applicants select their own destinations.��
• Prioritize applicants with high-wage job offers: Applicants are allocated quarterly to those with the highest job offers or earnings histories, adjusted for age and local ties.
• Pathway to permanent residency: Heartland Visa holders, in exchange for living in a participating community for six years, should have an expedited path to a green card.
• Scale: Heartland Visas should be large enough to fundamentally change the economic trajectory of participating communities for the better.��

Characteristics of proposed eligible places

Under eligibility criteria laid out in the Heartland Visa report, eligible communities have experienced substantial population loss in recent decades, including an 11 percent decline in the number of prime age 25-54 adults between 2010 and 2020. Eligible places have a 16 percent combined poverty rate (vs. 12 percent for the ineligible) and median household incomes $16,000 lower than ineligible counties.��

Critically, just 4.4 percent of the foreign-born population with a BA or higher live in eligible places, compared to 20 percent of the population overall. Access to a program like a Heartland Visa would accelerate growth and investment in participating counties and significantly improve opportunities for existing residents.��

Find your county

Explore whether your community would qualify under our proposed criteria for Heartland Visa participation:

Introduction

In the wake of growing anecdotal and empirical evidence, the centuries-old debate over how to regulate noncompete clauses has hastened towards a contentious resolution: ban them.

These post-employment restrictions, known simply as “noncompetes,” prohibit departing workers from starting or joining a competing firm for a period of time and often in a circumscribed geographic area. Historically, most U.S. states have enforced noncompetes on a case-by-case basis, seeking to balance the harms to workers and society that stem from direct restraints on competition with the firm’s need to protect its legitimate business interests.

The status quo, however, is on the verge of significant change. In 2023, the Federal Trade Commission proposed to ban noncompetes nationwide; for the first time in over a century, a state (Minnesota) has passed a ban on noncompetes, while another state’s proposed ban awaits the governor’s signature (New York); and the general counsel for the National Labor Relations Board declared that noncompetes violate the National Labor Relations Act. This recent policy action follows the many state policies passed since 2015 which have banned noncompetes for physicians, tech workers, and workers earning below specified thresholds.

Why did this historic debate over noncompetes move so abruptly towards banning them? Alongside increased media scrutiny and hard-to-stomach anecdotes of noncompetes unnecessarily derailing the lives of workers, new empirical evidence on the prevalence and harms of noncompetes and their enforceability has tilted the scales.

Table 1: Summary of empirical responses to common noncompetes policy questions

This new evidence has not gone unchallenged, however. In particular, the proposed FTC rule to ban noncompetes has given interested parties the opportunity to present their best justifications for why noncompetes are needed and to critique the evidentiary basis for the FTC’s proposed rule.

In this brief, I will review the core questions that commentators themselves submitted to the FTC in response to the proposed rule, and which presently challenge policymakers across the US. I’ll do so using the language and objections of commentators themselves. I will then review what the recent empirical literature on noncompetes has to say regarding each question. I focus on the following questions:

1. Is the status quo enforcement regime sufficient?
2. Do noncompetes help or hurt workers?
3. Do noncompetes boost or stifle innovation?
4. Do noncompetes help or hurt small businesses?
5. Does banning noncompetes for executives makes sense?
6. Do consumers benefit or suffer because of noncompetes?

By taking a question-based approach and relying on the latest empirical evidence for answers, my hope is that this guide can be useful to policymakers and readers alike, as they face these questions among their constituents.

1. Is the status quo enforcement regime sufficient?

Historically, states have determined the regulatory policy towards noncompete clauses. Except for California, Oklahoma, and North Dakota (and, as of July 2023, Minnesota), every state has opted for a regulatory approach that enforces reasonable noncompetes. While the scope of what is reasonable differs from state to state, courts have generally found a noncompete reasonable when it does not unduly harm the worker or society, and when it is no broader than necessary to protect a firm’s legitimate interests.

Several commentators have emphasized the idea that this status quo, case-by-case reasonableness approach taken by most U.S. states already addresses potential anti-competitive concerns over noncompetes. For example, Weibust and Gerson (2023) argue that because noncompetes are required to be narrowly tailored to be enforceable and because they must protect a legitimate business interests (e.g., trade secrets), the use of noncompetes among low-wage workers or workers without any business justification are outliers.^[1] Former FTC Commissioner Christine Wilson similarly questioned a change to the status quo in her dissent to the FTC’s proposed noncompete ban,^[2] writing (p.3), “I am dubious that three unelected technocrats have somehow hit upon the right way to think about non-competes, and that all the preceding legal minds to examine this issue have gotten it wrong” (emphasis added).

A growing body of empirical evidence suggests that we should be skeptical that status quo state enforcement policies sufficiently address the potential harms of noncompetes, or that noncompetes are associated with the many benefits that advocates suggest. In particular, the evidence suggests that (a) firms are often unscrupulous in their use of noncompetes, (b) that unenforceable noncompetes are common, that (c) noncompetes deter employees from taking jobs at competitors even when they are unenforceable, and that (d) firms do not value the ability to enforce noncompetes for most workers.

Harlan Blake, in his 1960 review of noncompetes,^[3] emphasized the potential proliferation of unenforceable noncompetes and their chilling effect on behavior when he wrote (p.682-683):

“For every covenant that finds its way to court, there are thousands which exercise an in terrorem effect on employees who respect their contractual obligations and on competitors who fear legal complications if they employ a covenantor, or who are anxious to maintain gentlemanly relations with their competitors. Thus, the mobility of untold numbers of employees is restricted by the intimidation of restrictions whose severity no court would sanction.” (emphasis added)

Unfortunately, stories of noncompetes that no court would sanction are common, like the temporarily employed Amazon packer making $13,^[4] or the volunteer at a non-profit that focuses on exercise among young girls.^[5] And there are also stories of firms who are unwilling to hire a junior worker, even when they know the noncompete is likely unenforceable.^[6]

Surveys of workers and firms suggest that these stories are not anomalies. Colvin and Shierholz (2017)^[7] found in a national survey of 634 private-sector firms in 2017 that 31.8 percent of them reported using noncompetes with all of their employees, while 49.4 percent said they used them for some employees. Balasubramanian et al. (2023),^[8] in an independent survey in 2017 of approximately 1,500 U.S. firms, similarly found that 29.5 percent of firms used noncompetes with all their employees, while 66.5 percent used them with at least some employees.^[9] Lastly, in a 2022 survey of 446 private U.S. companies who are included of the Society of Human Resources database (SHRM),^[10] the U.S. Government Accountability Office found that 55 percent of firms use noncompetes with some workers. Furthermore, the survey reveals that among employers who use noncompetes and have hourly workers, again 55 percent cover all of their hourly workers with noncompetes.^[11] These statistics reveal that, contrary to what pro-noncompete advocates argue,^[12] for many firms the choice to use a noncompete is not tailored to individual job duties, the types of information a worker might have access to, or compensation; rather they are fixed firm policies that cover every worker. The indiscriminate adoption of noncompetes is most likely how we find examples of unpaid interns^[13] and janitors with noncompetes.^[14] It is likely why, based on a 2014 nationally representative survey, the typical worker with a noncompete is paid by the hour, making at the median approximately $14 per hour.^[15]

While courts are unlikely to sanction many of these noncompetes, it is perhaps more concerning that firms are similarly likely to use noncompetes for all workers regardless of whether they are enforceable. Colvin and Shierholz (2019) find, for example, that 29.3 percent of firms based in California, where noncompetes have been unenforceable since 1872, still use them for all workers. In fact, even though some studies of high-skilled jobs find noncompetes are more prevalent in states that would enforce them versus states that would not,^[16] nearly every nationally representative study of noncompete use finds that noncompetes are found in approximately similar levels in states that will and will not enforce them, including studies of firms,^[17] employees,^[18] and in government-collected data.^[19]

There are many potential reasons that firms use unenforceable noncompetes. A favorable view is that firms use unenforceable noncompetes just in case the policy might change. Alternatively, the firm might seek to invoke another state’s law within the contract to circumvent a state’s laws.^[20] A more unfavorable view is that firms are deploying unenforceable noncompetes in the hopes that workers and competitors abide by them. Catherine Fisk expressed this view in her 2001 article,^[21] writing (p. 782-3):

“In California, covenants not to compete have been unenforceable against employees since 1872. Employers have nevertheless sought to restrict their employees from working for competitors … presumably counting on the in terrorem value of the contract when the employee does not know that the contract is unenforceable.”

Subsequent research has bolstered the idea that noncompetes exhibit an in terrorem effect on workers. Using nationally representative data, Starr, Prescott, and Bishara (2020)^[22] find, for example, that noncompetes are associated with reduced employee mobility, and are associated with redirections in worker search and recruitment behavior from competitors to noncompetitors, even when unenforceable. Perhaps most directly, they find that workers cite noncompetes as a factor in turning down a job offer from a competitor at similar rates in states that do versus do not enforce them.

In a follow-up study, Prescott and Starr (2022) show that workers tend to believe their noncompetes are enforceable, even when they are not, and that their beliefs about the law—rather than the actual law—matter to their actions.^[23] They also find evidence that, rather than passively using unenforceable noncompetes, firms actively try to keep workers misinformed when their noncompetes are unenforceable. Specifically, they find that firms in states that do not enforce noncompetes are twice as likely to remind workers about the terms of their noncompete after they get a job offer from a competitor. Thus the information asymmetries around the actual enforceability of a noncompete advantage employers and disadvantage workers. Finally, this study uses an information experiment to inform workers of the law. Doing so spurs workers with unenforceable noncompetes to be more open to opportunities with competitors, but even among those who know their noncompete is unenforceable, noncompetes still play a factor in their choice to leave because they fear a potential lawsuit or feel moral or reputational concerns from violating the contract.

While these studies emphasize the effects of noncompetes that are unenforceable given the state’s pre-existing non-enforcement policy, their findings also apply to noncompetes in states where they are potentially enforceable. That is, even when noncompetes are potentially enforceable but a court deems them unenforceable, firms can and do continue using them. For example, in the FTC’s case against Prudential Security—in which Prudential required security guards to sign a 100-mile noncompete with a $100,000 damages clause if the individual violated the noncompete—a 2019 Michigan court found the noncompete unreasonable and unenforceable. After the ruling, however, Prudential kept using the same noncompete among the security guards.^[24] A similar case involving logistics company Total Quality Logistics (TQL) reveals the same pattern. An attorney in a recent case noted that TQL has been using the exact same noncompete courts have previously held to be overbroad.^[25]

Taken together, this body of research bolsters the longstanding criticisms of Blake (1960) and Fisk (2001) of the status quo enforcement regime in the United States. This is not to say that the courts and state statutes or policies have no effect—they do and can, as I will discuss later. But the current status quo does little to encourage firms to be judicious in their use of noncompetes; rather, because of the indiscriminate adoption of noncompetes, many if not most noncompetes are likely unenforceable, and unenforceable noncompetes still chill worker mobility.

Given the chilling effect of unenforceable noncompetes, it is natural to wonder to what extent firms value the ability to enforce their noncompetes in court. Indeed, in the event that a worker does violate the noncompete and seeks to join a competitor, it is court enforceability of the noncompete that actually prevents the worker from joining a competitor, and thus precludes the potential disclosure of confidential information. For this reason alone, many proponents of noncompetes think they should be enforceable—to give firms incentives to develop and share confidential information in the first place.^[26] Nevertheless, a recent study casts doubt on the idea that firms really value the ability to enforce noncompetes for most workers, especially in light of alternative tools they already have to protect those same interests.

Hiraiwa, Lipsitz and Starr (2023) examine whether firms are willing to pay to have the option to enforce a worker’s noncompete,^[27] potentially to protect a trade secret or some other valuable information. The study examines a Washington state policy enacted in 2020 that retroactively banned noncompetes for workers earning under $100k per year, a threshold that is tied to inflation and covers approximately 80 percent of workers in Washington. The basic idea in the study is that, before 2020, a worker making $99k could potentially have their noncompete enforced, subject to a typical reasonableness test. In 2020 and after, however, the likelihood of enforcement for a worker making $99k was zero—unless the firm gave the worker a small raise to get to the earnings threshold, which they could do with an end-of-year bonus. So, if the firm valued the ability to potentially enforce the noncompetes of workers earning just below the threshold, they could give those workers a small raise to get them to or just above the threshold. The resulting empirical prediction is that we should observe more workers earning just above the threshold after 2020 relative to before 2020. However, Hiraiwa et al. (2023), using data covering the near universe of workers in Washington, find no evidence that firms are giving workers raises to get to or just above the threshold, including in industries where arguments about the efficiency of noncompetes are the strongest, such as professional and technical services, information, or manufacturing. A survey of Washington-based attorneys reveals that the most common reasons for not giving just-below-threshold workers small raises was that firms didn’t generally have to go to court to enforce them, and that firms had other tools to protect their interests.

The broad conclusion of Hiraiwa et al. (2023) is that, for workers at the 80^th percentile of the earnings distribution, noncompetes are either inefficient or the actual enforceability of the noncompete does not increase productivity. They are able to draw this conclusion because, if the enforceability of noncompetes created value for the company, they should be willing to pay for it—yet companies do not appear to pay for it for workers at the 80^th percentile. It may be that firms are willing to pay for the ability to enforce noncompetes at some higher threshold, but a similar study with a higher earnings threshold would be required to test this possibility.

To summarize: The status quo noncompete enforcement system in the United States does not dissuade firms from systematically using noncompetes with workers that no court would sanction. Many, if not most, noncompetes operate outside the legal system, deterring workers from joining firms in their chosen industry. And even when a given noncompete is determined to be unenforceable, firms can and do continue using them. Moreover, firms themselves have revealed that they are not willing to pay for the ability to enforce noncompetes in court for most workers.

2. Do noncompetes help or hurt workers?

A recent study by Balasubramanian et al. (2023)^[36] sheds some important light on this tension. The authors show that firms tend to bundle restrictive covenants together, such that firms generally tend to use either no restrictions, only a nondisclosure agreement, or (at least) four restrictive covenants together (e.g., a noncompete, client/coworker nonsolicitation, and nondisclosure agreement). As in prior research, Balasubramanian et al. (2023) find that workers with noncompetes earn more than workers without noncompetes. But the authors decompose those two buckets further into those with all four restrictions versus those with none and those with only a non-disclosure agreement. The findings reveal that workers with all restrictions earn more than those with no restrictions but earn 3-7 percent less than those with only a non-disclosure agreement. The reason for the positive overall estimate on noncompetes versus no noncompete is that those with no restrictions cover a larger share of the workforce. The question then is which of these comparisons is more reliable? The authors posit and find evidence suggesting that a comparison of workers with all four restrictions to workers with only an NDA is a more reliable comparison because it nets out selection into the use of any restrictions. They further find that firms that use all four of these restrictions with all their workers are less likely to be concerned about turnover and are less likely to give raises relative to firms that use only NDAs with all of their workers. This suggests a natural reason why average wages would be lower under noncompetes and the other restrictions: workers with all restrictions stay longer and don’t receive wage increases.^[37]

Overall, Balasubramanian et al. (2023) makes two very important contributions. First, the study clarifies that prior results of nationally representative samples finding positive wage relationships with noncompetes are likely driven by selection and should not be interpreted causally. Rather, a negative average wage effect is more likely. Second, it highlights that it is difficult to discern from any observational studies what the effect of a noncompete is, separate from the other simultaneously adopted restrictions. It’s possible and likely reasonable that the noncompete is driving the earnings losses because it is the broadest restriction and the restriction that most directly interferes with labor market competition. It’s also possible that it’s the combination of the restrictions together that drive the earnings losses.^[38]

So, what have researchers done to try to say something more definitive about the causal effects of noncompetes on wages? In addition to examining how the noncompete-wage relationship changes where noncompetes are more versus less enforceable (as discussed above), they have turned to natural experiments related to state noncompete policies. In light of the potential use of unenforceable noncompetes (as noted above), these research designs do not ask how actual noncompetes affect workers or firms; rather they ask how wages within the state change when states ban, limit, or more vigorously enforce noncompetes.

Studying state policies implies that researchers are limited to policy variation that exists. Accordingly, there is no equivalent to a country-wide ban on noncompetes akin to the one the FTC has proposed; however, there are many such bans that have operated at a smaller scale, several changes to the enforceability of noncompetes, and of course long-standing differences across states and occupations (e.g., noncompetes have been prohibited among lawyers since the 1960s, a fact that is exploited in Starr et al. (2018)).^[39] In 2008, for example, Oregon banned noncompete agreements for low-wage workers, while in 2015, Hawaii banned noncompetes (alongside agreements not to solicit coworkers) for high-tech workers. Researchers examining these bans, as well as those studying a multitude of smaller changes to state noncompete laws, come to the same conclusion: banning noncompetes increases wages by 3-4 percent, both for low-wage workers and high-tech workers, and increases their mobility 11-17 percent.^[40]

Commentators suggest several other criticisms of this research. For example they suggest that firms will forego training without noncompetes and that workers’ wages will suffer in the long run as a result.^[41] While evidence is mixed on whether noncompetes are associated with more training, the evidence also suggests that workers do not benefit on net from that training.^[42] A third study also suggests that one reason we see more training in states where noncompetes are enforceable is because noncompetes prevent firms from hiring experienced workers in their industry, thus causing them to hire outsiders or newcomers and train them up. See Starr, Evan, Martin Ganco, and Benjamin A. Campbell. “Strategic human capital management in the context of cross‐industry and within‐industry mobility frictions.” Strategic Management Journal 39, no. 8 (2018): 2226-2254. For example, Balasubramanian et al. (2022) study the long-run effects of simply starting a job in a state that enforces versus does not enforce noncompetes. If training benefits these workers, then they should at some point experience greater earnings—but this study finds negative earnings effects, including lower within-individual earnings growth, that lasts over at least 8 years.

Finally, it is important to reiterate that these estimates likely underestimate the extent to which banning noncompetes will increase wages. This is because firms still use even unenforceable noncompetes, and—as discussed above—unenforceable noncompetes still chill worker mobility.^[43]

To summarize: Commentators suggesting that noncompetes cause higher wages are largely misinterpreting cross-worker correlations. Rather, recent economic evidence suggests that the positive correlations between noncompetes and wages is likely spurious and that noncompetes (potentially alongside non-solicits and NDAs) likely reduce earnings by increasing retention and shielding firms from labor market competition. These findings align with studies of state policy shocks which cover state-level bans on noncompetes for low-wage workers, high-tech workers, and a variety of other changes to state noncompete laws. There is some mixed evidence that noncompetes are associated with more training, but the evidence also suggests that whatever additional training workers receive does not lead to greater worker earnings, but rather cumulative, long-term wage losses.

3. Do noncompetes boost or stifle innovation?

Many commentators highlight why noncompetes are potentially valuable for firms: they give firms incentives to develop and share valuable information with workers that may make those workers more productive, without fear that the workers will take such information to a competitor.^[44] This is a classic argument, and it’s the same reason policymakers have developed various intellectual property protections including patents, trade secret law, copyrights, and other contractual protections like non-disclosure and non-solicitation agreements. Policymakers want to provide incentives for firms or individuals to develop highly valuable innovations.

But, despite the appeal of this logic and some significant critiques and mixed results of early research on the relationship between noncompetes and innovation,^[45] the best evidence consistently points in the opposite direction. The story that has emerged from this evidence is that, despite the fact that noncompete enforceability modestly spurs firm investment, the overall effect of noncompete enforceability is to reduce innovation. The mechanisms underlying this reduction appear to come from several channels: reduced mobility, entrepreneurship, information flows across firms,^[46] employee effort, and a misallocation of inventive talent.

The best evidence on innovation comes from several recent studies. The first is a study by Johnson, Lipsitz, and Pei (2023), which uses the variation in the enforceability of noncompetes stemming from dozens of policy changes between the 1990s and mid-2010s to assess directly how noncompete enforceability influences innovation.^[47] Their findings suggest that an average-sized increase in NCA enforceability reduces patenting by 16-19 percent over the ensuing 10 years, including reductions in “break-through” inventions. Moreover, they find that this decrease does not simply reflect a strategic substitution towards trade secrecy or that it simply shifts innovation activity to other states. The authors replicate a variety of other results to bolster their findings—that enforcing noncompetes reduces the churn of technical workers as well as the rate of new business formation, while increasing investment in “intangible” investments by 8.1 percent (but with no effect on capital investment).^[48] One way to interpret these results is that innovation is the result of many inputs—including firm investment, individual capital, individual effort, team capital, etc.—such that, while firm investment rises, the overall effect of noncompete enforceability is a reduction in innovation.

Other recent studies using similar variation in the enforceability of noncompetes document similar findings. For example, Reinmuth and Rockall (2023) find that an average increase in the enforceability of noncompetes reduces patenting by 11.8 percent.^[49] In He (2021), the author finds that patents filed after an increase in noncompete enforceability are less valuable, suggesting that innovators are less motivated after an increase in enforceability. And Mueller (2022) finds that inventors are 67 percent more likely to change industries following an increase to the enforceability of noncompetes, and that noncompete-induced industry-movers are 30 percent less productive based on innovative output.^[50] In contrast, inventors who cross industries voluntarily (e.g., not induced by the noncompete) are 16 percent more productive. Mueller (2022) concludes that innovation losses result from the misallocation of inventive labor.

Finally, given the multitude of mechanisms by which noncompetes influence innovation, it is helpful to consider a model which tries to quantify each such mechanism, which Baslandze (2022) does.^[51] She uses data on patents and firm dynamics to study the relationship between noncompetes, innovation, firm growth, and welfare. She builds and estimates a general equilibrium endogenous growth model in which she allows for noncompetes to be a direct entry restriction, to increase incentives for firms to innovate, to reduce information flows, and to reduce competition by affecting the composition of firms. Her paper quantitatively evaluates all of these channels and concludes that it is both “growth- and welfare-enhancing to abolish non-compete enforcement.”

To summarize: Even though noncompete enforceability does give firms incentives to invest, the net effect is a reduction in innovation and the misallocation of inventive talent.

4. Do noncompetes help or hurt small businesses?

Many commentators are concerned about how a ban on noncompetes will affect small businesses.^[52] The main concern is that small businesses developing valuable information can be especially susceptible to a key employee leaving with that information, potentially “devastating” the business.^[53]

This concern is understandable, but the empirical evidence suggests instead that noncompetes hurt small businesses and favor large incumbents. Not only do firms have other tools to protect their interests like non-solicitation and non-disclosure agreements, but several studies find that when states are more likely to enforce noncompetes, new firms are less likely to form,^[54] and that new firms struggle to hire and grow. For example, Johnson, Lipsitz, and Pei (2023) show that enforcing noncompetes not only reduces new firm entry but also reduces the job creation rate. They further show that increases in noncompete enforceability reduce innovation among startups. Kang and Fleming (2020), examining the 1996 Florida statute that many regard as the most vigorous noncompete enforceability policy in the United States,^[55] find that the Florida law disproportionately benefited large firms vs. small firms by increasing the share of establishment entry and employment coming from large firms.

A recent survey of 312 small business owners bolsters the core ideas that noncompetes both hinder the entry and growth of small businesses:^[56] Forty-four percent of small business owners report that they have been subject to a noncompete that prevented them from starting or expanding their own businesses, while 35 percent report that they have been prevented from hiring an employee because of a noncompete. Only 14 percent of small business owners oppose or strongly oppose the FTC’s proposed rule, while 59 percent of small business owners approve. While this sample may not be representative of all small business owners, it provides specific evidence that underlies the core mechanisms identified in the empirical literature.

To summarize: Rather than hurt small businesses, the evidence suggests that noncompetes favor incumbents and make it more difficult for new firms to start, grow, and innovate.

5. Does banning noncompetes for executives makes sense?

Many commentators express concern about whether noncompetes are reasonable for executives^[57] The concerns are understandable. Executives (and other knowledge workers) know confidential information that might bestow a significant advantage to a competitor, should they be allowed to join one and should they share what they know.

However, there are several reasons why a ban on noncompetes even for executives can makes sense, and indeed some recent theoretical and empirical work comes to this conclusion. Those justifications derive not from assumptions about disparities in bargaining power or concerns about the harms that noncompetes cause to executives, but rather that executive noncompetes can cause significant harm to third-parties, and that alternative, less restrictive protection tools may sufficiently protect firm interests in the absence of noncompetes. I review that evidence in this section.

The first reason noncompetes might not be necessary for executives is that noncompetes are just one of many protection tools available, including non-disclosure agreements, non-solicitation agreements, trade secret law, and others. Noncompetes offer somewhat more protection than these mechanisms because they operate by precluding a move in the first place, as opposed to acting as a tool to recoup damages once a secret has been misappropriated or a client has been solicited. Without noncompetes, commentators are concerned that trade secrets might be leaked, and that costly trade secret litigation could rise.^[58] While it is also possible that trade secret litigation might actually fall when noncompetes are banned (e.g., if the inability to enforce a noncompete reduces willingness to file a trade secret claim), it is nevertheless worth emphasizing three things. First, there are new tools to protect trade secrets directly that do not rely on noncompetes at all; these include the possibility of directly insuring trade secrets or partnering with companies willing to finance trade secret litigation.^[59] Second, there will not be a one-to-one change in noncompete to trade-secret cases if noncompetes are banned. Workers who abide by their other restrictive covenants won’t face legal disputes. These are workers who would not give any other firm an unfair advantage but are nevertheless prohibited from competing under the status quo. Third, among those workers who might bring some information over, a firm would likely only bring a case if the information shared was valuable to the competitor in the sense that it resulted in competitive harm to the initial firm. As a result, it’s unlikely that trade secret or NDA litigation would rise all that much (if at all), if noncompetes are banned, especially if workers adhere to their less-restrictive agreements.

Nevertheless, firms have figured out how to protect themselves without the ability to enforce executive noncompetes. Sanga (2018) shows how California firms have worked around the lack of enforceability of executive noncompetes by tying the post-employment payout period to the prohibition period in the noncompete.^[60]

Aside from the fact that firms have other tools to protect their valuable information or goodwill, the most common reason for considering executives in a ban on noncompetes is not because the executives will be worse off,^[61] but rather that other parties will be harmed, including other firms, workers, or consumers.

For example, one natural reason to include executives in a noncompete ban is based on the preceding discussion of Baslandze (2022), which finds such a ban is optimal based on theory and empirical work related to innovation and entrepreneurship.

In addition, a recent paper by Liyan Shi (2023) studies the executive labor market and suggests that the optimal policy—for executives—is close to a ban.^[62] It is natural to wonder how this might be possible when two sophisticated parties can negotiate and come to terms that are mutually beneficial, and when noncompetes do encourage firm investment. The answer is that, like in Mueller (2022), noncompetes can misallocate labor from their most productive use. The main idea in Shi (2023) is that because all parties are not at the table when negotiating a noncompete, the terms of the noncompete maximize the bilateral surplus between the executive and the focal firm, which results in excessive terms that are designed to extract rents from third parties who were not at the table. In the case of Shi (2023), the other parties are the other employers who might value the executive more than the initial employer. This results in socially costly labor misallocation, where executives are displaced from their most productive uses. Shi (2023) builds and calibrates a model of the executive labor market, using data from real executive contracts. She incorporates estimates from how firm investment relates to noncompete policies as well as how executive separations are affected. She finds “the optimal policy to be quantitatively close to a ban.”

Lipsitz and Tremblay (2021) emphasize a similar point: Consumers are also not at the table when executives bargain over these agreements. They document that noncompete enforceability increases product market concentration and posit that perhaps executives agree to noncompetes to limit competition and extract rents for themselves—as opposed to consumers receiving those rents in the form of lower prices. That is, executives can be seen as potential competitors who might increase competition down the road if they were to start a new firm, which might reduce future prices for consumers. However, if executives (and others such workers who might start a new firm) understand that increased future competition will reduce rents available in the industry, then they might rationally bargain over the noncompete to extract rents for themselves as opposed to starting a new firm in the future and delivering those rents to consumers in the form of lower prices.

Another form of third-party harm might occur when firms use noncompetes in parallel with high frequency. This idea is not specific to executives but arises with executives because they are most likely to have noncompetes. What do industry dynamics look like if most workers in the industry have a noncompete? Who can firms hire? Who will start a new firm? In such an industry, the whole market might be less dynamic. Indeed, those are the findings of Starr, Frake, and Agarwal (2019),^[63] who find that, where enforceable noncompetes are used en masse, the whole market is slower moving and lower earning, including for workers not bound by noncompetes.

Finally, it is worth noting that banning noncompetes based on third-party harm actually has a long-standing tradition in the United States. The only occupation in the whole United States for which noncompetes are prohibited is the practice of law.^[64] Rule 5.6 of the American Bar Association reads:^[65]

A lawyer shall not participate in offering or making:

(a) a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement;

Moreover, the ABA’s comment on Model Rule 5.6 emphasizes the logic behind the rule is that noncompetes can hurt clients. The ABA writes (emphasis added) “An agreement restricting the right of lawyers to practice after leaving a firm not only limits their professional autonomy but also limits the freedom of clients to choose a lawyer.”^[66] The same argument is often made for restrictions on physician noncompetes (that their noncompete-related departure would hurt patients).^[67]

Thus, even though lawyers carry with them valuable clients, and are highly sophisticated and savvy, noncompetes are prohibited out of concern for how they can affect a third party.

To summarize: There are several reasons why even executives or high-skilled, knowledge workers might be included by a noncompete ban, even when these agents are fully rational and sophisticated and when noncompetes spur investment. These include technological spillovers, labor misallocation, rent extraction from consumers, externalities from parallel action, and other tools the firm already has to protect their interests.

6. Do consumers benefit or suffer from noncompetes?

Several commentators have argued that if noncompetes are banned then prices will rise for consumers; some rely on the assumption that if wages rise then firms will pass on the wage increases to consumers.^[68] Others suggest that banning noncompetes will lead to an increase in employee misconduct, pointing to a study by Gurun et al. (2021) in which a firm entering into the “Protocol for Broker Recruiting”—which “allowed an adviser to take client lists and contact information to their new employer without fear of legal action”^[69]—is found to be associated with an increase in misconduct and fees.^[70]

In this section, I revisit these arguments and the evidence. In general, harms to consumers can either come from higher prices, lower quality, or reduced output. As discussed above, the research on innovation and entrepreneurship already suggests that consumers are harmed by less innovation and lower quality innovation from the enforcement of noncompetes. And the research on business dynamism suggests that enforcing noncompete agreements increases concentration,^[71] in part by reducing new firm formation^[72] and in part by increasing M&A activity,^[73] both of which can lead to higher prices and reduced output (as we move from a more competitive market to a more oligopolistic market). Indeed, the main study on prices by Hausman and Lavetti (2021) suggests that enforcing noncompetes in the healthcare context leads to higher prices through this concentration channel.^[74]

In addition, concerns that wage increases that result from allowing workers to move across firms would translate into price increases are likely misplaced. As a general rule, competition in both product and labor markets is good for consumers. By making labor and product markets more competitive and innovative, banning noncompete agreements will likely result in lower prices and greater quality and output. In a static model, the resolution of the wage-price connection is that competitive labor markets push out employment relative to monopsonistic markets, which increase supply in product markets, and thus reduce prices.^[75]

Finally, as it relates to the study by Gurun et al. (2021) on the Broker Protocol, there are several important points to make. First, this study is not about noncompetes; the Broker Protocol relaxed noncompetes, nonsolicitation, and nondisclosure agreements for participating firms.^[76] Second, and perhaps more importantly, commentators and the FTC failed to recognize a similar study which also examines the “broker protocol” in a broader sample, but comes to the exact opposite findings of Gurun et al. (2021).^[77] This study by Clifford and Gerken (2021) finds that brokers treat clients better after their firm enters the Protocol, with the incidence of client disputes falling 20.3 percent. Clifford and Gerken also find evidence that advisors invest in acquiring costly licenses to sell new products to their customers. They see this as evidence of the advisors becoming more client-oriented, and it may also explain why fees rise in the Gurun et al. (2021) study.^[78]

To summarize: The bulk of evidence suggests that consumers are likely harmed by noncompetes, whether by reduced innovation, reduced output, or by higher prices. And given the FTC’s omission of the work by Clifford and Gerken (2021), as well as some of the limitations of the work by Gurun et al. (2021), it is not unreasonable to think that consumers actually benefited from the ability of their advisors to leave for other firms in the Broker Protocol and to solicit clients to leave with them (though whether the Broker Protocol tells us anything about noncompetes separate from nondisclosure and nonsolicitation agreements is an open question).

Conclusion

The last few years have witnessed a whirlwind of policy and research activity related to the use and effects of noncompetes on U.S. labor markets. Although there are some important questions remaining,^[79] by and large this research has addressed some of the fundamental questions underlying the policy debate around noncompetes. These include:

1. We should be skeptical that the status quo enforcement approach—a case-by-case reasonableness inquiry—is sufficient for deterring firms from indiscriminately using noncompetes.
2. Noncompetes and their enforceability most likely reduce wages for most workers, despite any increases in worker training.
3. The enforceability of noncompetes reduces aggregate innovation, even if it creates private incentives for firms to invest on the margin.
4. The enforceability of noncompetes hurts small businesses relative to larger incumbents.
5. The potential for third party-harm and alternative protection tools suggest that bans on noncompetes could reasonably include executives.
6. Consumers are likely hurt from the enforceability of noncompetes via more market concentration, lower quality product offerings, and higher prices.

Introduction

With the passage of the Tax Cuts and Jobs Act in 2017, Opportunity Zones (OZs) became the most consequential place-based policy initiative in a generation. Designed with decentralization, flexibility, and scalability in mind, OZs were the first federal development program to use capital gains tax incentives as the mechanism to drive behavior.^[1] This structure was one important departure among many from the more traditional tax credit model, which together help explain how OZs unlocked $48 billion worth of direct equity capital for investing in targeted low-income communities by the end of 2020 alone.^[2]

The novelty of the OZ mechanism has ushered in a new generation of research as scholars race to grade the policy. Historically, researchers have found little lasting economic impact from legacy “zone” programs such as Enterprise Zones, prompting many to ask whether OZs would be any different.^[3] In the rush to declare success or failure, however, even prominent scholars have succumbed to various analytical pitfalls searching for effects of the policy in the wrong places at the wrong times. The structure of the incentive, pace of regulatory rollout, and nature of community development all caution for patience in allowing the impacts of the policy to register. In the meantime, the studies that most clearly incorporate the structure of the incentive and its most common use-cases into their design show strongly positive initial results that suggest that the OZ model has truly broken new ground. The following brief will critically evaluate the emerging body of academic work on the economic impacts of OZs to level-set on what can credibly be determined at this point in time and, we hope, constructively inform scholars’ research agendas going forward.

Taking Stock of the Emerging Literature

Scholars have endeavored to evaluate the performance of OZs across a number of different factors since the policy was enacted. They have explored the relationship between OZ status and home prices,^[4] commercial property sale prices and transaction volumes,^[5] building permits activity,^[6] establishment openings,^[7] job openings,^[8] employment rates, incomes, and poverty rates.^[9] Effect estimates on the immediate and short-run impacts of OZs have ranged from positive^[10] to null.^[11] Appendix Table 1 compares and contrasts a number of different studies in depth.

Not all of these studies are created equal, however. Some have consequential shortcomings in their designs or methods. For example, most inquiries only examine a short window immediately following the policy’s passage—an implausible time horizon for observing meaningful impacts. The analysis window in four of the nine most widely-referenced papers does not extend beyond 2019, meaning their study periods ended just as OZ regulations were finalized (see Figure 1).^[12] Results from this pre-regulatory period cannot tell us anything about the direct short-term impact of OZ investment on targeted communities, not to mention anything of the long-term impact of a fully-implemented policy. As it happens, the two studies observing the strongest positive impacts (Arefeva, et al., 2023 and Wheeler, 2022) incorporate at least two full years of post-regulatory observations.

Figure 1: Chronology of select OZ studies and milestones

Timelines Are Critical to Evaluating OZs

All new policies take time to ramp up, but the structure of the OZ incentive makes timing especially crucial to internalize into study designs. Specifically, scholars must take into account key regulatory milestones, grasp how the regulatory timeline shaped the evolution of the market, and align with the on-the-ground realities of investment and development.��

• Regulatory timeline. OZs were enacted in December 2017 as part of the Tax Cuts and Jobs Act, but states first had to identify and propose their OZ selections to the U.S. Treasury, and then those individual census tracts had to be certified by the Secretary. This process was not completed until June 2018. Following designation, regulations essential to investing in OZs were promulgated in three waves, starting in October 2018, then in April 2019, and finally in December 2019—the latter two packages being the largest and most substantive. Thus, 2020 marked the first year a fully-operational OZ investment ecosystem was up and running.
• Market development timeline. The regulatory timeline naturally shaped the economic and financial evolution of the market. The amount of equity capital raised by OZ funds grew rapidly as the regulations were finalized and has continued climbing since. The best available estimates report that OZ funds held a cumulative $48 billion in assets by the end of 2020, up from $4 billion in 2018 and $30 billion in 2019.^[13] Private data sources suggest that holdings at least doubled again over the subsequent two years, charting a steep climb towards—and likely past—$100 billion in direct OZ equity by 2022.^[14] It is important to remember that these figures describe the supply side of the OZ market, however, and that they will lead actual capital deployment significantly. In terms of communities, the best available information reports that 48 percent of OZs had already registered investment activity through the incentive by the end of 2020 (translating to approximately 3,800 individual communities, or census tracts), up from 26 percent in 2019.^[15] In other words, the number of tracts registering investment was climbing steeply alongside investment dollars in the policy’s early years.��
• Investment timeline. The third critical consideration around timing has to do with the practical mechanics of investing and development. Investors have six months from realizing a capital gain to move the earnings into an OZ fund, and funds then have another six months to begin deploying that money into investments in communities. To date, OZ investments have primarily—although by no means exclusively—taken the form of real estate (often multi-family residential or mixed-use) and by nature (as codified in statute and regulation) must be new builds or substantial rehabilitations. The average multifamily construction project in the United States lasts 17.5 months from authorization to completion; even longer (19.2 months) for the larger buildings often associated with OZ investment.^[16] Even before breaking ground, developers and investors have to conduct significant due diligence and project planning. Thus, two years can pass between when a place registers an OZ investment and when that investment becomes an economically active property. Researchers should anticipate these lags in their study designs.��

What to Look For, and When

Ultimately, these timeline considerations mean that inquiries need to be grounded in clear theories of cause and effect, or what to expect and when. Timeframes are especially crucial given the upstream nature of an investment incentive, which only indirectly influences many economic indicators researchers care about—and does so at a considerable lag. Enterprise Zones provided direct employment tax credits, for example, the economic impacts of which can register immediately (the credit is only awarded when a person is in a job). OZs are fundamentally different.

by Adam Ozimek and Connor O’Brien

Introduction: Congress’ Historic Semiconductor Push

The resurgence of industrial policy in the U.S. is perhaps the most consequential—and also most daunting—when it comes to semiconductor manufacturing. The focus of policy on this sector is understandable: the overwhelming concentration of leading-edge chip production in the geopolitical hotspot of Taiwan, along with China’s aggressive push to strong-arm Western chipmakers into ceding frontier chipmaking technologies, has raised significant national and economic security concerns. The economy relies on advanced semiconductors for a wide variety of products and services and though the global pandemic did not notably decrease the production of most types of chips, it did illustrate how costly supply chain disruptions can be. Chips play a key role in defense and national security from mature node chips in missiles to leading-edge semiconductors in autonomous vehicles. The extent to which both our consumer economy and national security apparatus rely on semiconductors makes the concentration of the chip supply chain in a potential war zone a top-tier policy concern.

To address these risks, Congress and the administration are making an historic, bipartisan push to reshore some semiconductor manufacturing with the CHIPS and Science Act, which will spend over $50 billion in federal grants for private industry and research groups in the coming years. Using these funds, the U.S. Department of Commerce will make a series of high-stakes bets on new facilities and manufacturing clusters throughout the country. The primary goal of the CHIPS and Science Act’s semiconductor provisions is to reshore some production of leading logic and memory chip manufacturing, rebuilding localized communities of practice and highly specialized knowledge and experience. The implementation of these provisions and corresponding policies to support them should remain tightly focused on achieving this reshoring outcome.

While this commitment is an important step towards advancing greater global diversification and U.S. control of a critical industry, success is far from assured. Even if Commerce can successfully incentivize new facilities and new suppliers, it is far from guaranteed that recipients will continue to invest in the United States after funding for subsidies is exhausted. Longstanding criticisms of industrial policy are relevant and cannot be dismissed out of hand simply because of the national security imperative. The history of industrial policy is littered with examples of incomplete efforts that include spending public money without addressing the other necessary barriers to building-out an industry that can ultimately stand on its own without ongoing government support. The risks of industrial policy failure are even more clear in the case of semiconductors; after all, the United States has already proven that it can attain, and subsequently lose, global preeminence in chip manufacturing.

With this history and a realism about the challenges of bringing back a globally competitive industry in mind, policymakers must ask what steps can be taken next to increase the odds of success for this important industrial policy. While the CHIPS Act represents a considerable capital investment, that is only part of the recipe for success for an industry that relies on some of the world’s most sophisticated machinery and supply chains. The big push of physical and financial capital must be matched by a big push of human capital. In this brief, we propose a targeted visa reform to assist chipmakers in attracting necessary talent and making the most of this historic bipartisan investment.

Targeted Immigration is an Exception to the Rule

The ideal approach to U.S. skilled immigration policy would be to prioritize immigrants who have the highest earning potential rather than attempt to admit people based on a bureaucratic assessment of which specific skills or occupations are facing “shortages.” This hands-off approach is in-line with the broadly decentralized way that U.S. policy traditionally deals with similar issues like degree choice, occupation choice, and industry growth. Policymakers are, in general, ill-prepared to predict long-term changes in the sectoral composition of the economy and to promptly adapt policy accordingly, so an industry-agnostic perspective tends to be most effective in stoking innovation. However, there are a handful of rare, notable exceptions where policy can be targeted at specific industries for geopolitical and national security reasons. Few industries meet this high bar, but Congress has, with justification, decided that the security of semiconductor supply chains is too important to be allowed to be concentrated in the hands of adversaries or geopolitically vulnerable regions. Given this policy stance, the industry-agnostic approach to immigration should be reconsidered in this context as well; CHIPS subsidies are headed out the door regardless, so it is imperative we do what we can to make them work.

Talent is a Barrier to Scaling Up Chipmaking

Indeed, a close examination of the economics of the semiconductor supply chain suggests that talent will be at least as crucial an input to the industry’s domestic revival as the additional capital to be supplied by the CHIPS and Science Act. While increasing the supply of engineers and other skilled workers from U.S. universities will be critical in the long-run, sole reliance on this limited and difficult-to-scale talent stream would seriously jeopardize the success of the CHIPS Act in the near-term. In this section, we discuss why high-skilled immigration policy will be a key ingredient to the success—or failure—of CHIPS. The case for a big push of human capital as a crucial component to semiconductor industrial policy is evident in the following four facts about the semiconductor industry with implications for workforce needs.

1. Semiconductor manufacturing requires highly specialized and experienced technical talent, particularly at the technological frontier.

Semiconductor production is incredibly complex, and at all stages requires a workforce that is not just highly skilled but also possesses hands-on experience. Consequently, international engineers at TSMC, Samsung, and other manufacturers represent a “critical competitive advantage in the chipmaking industry,”^[1] and requiring the U.S. industry to grow solely using the domestic workforce would deprive manufacturers of critically important workers who possess the on-the-ground knowledge necessary for success immediately.

Historically, attracting thousands of high-skilled and experienced workers has proven central for successful industrial policy around the globe. During its infancy, Taiwan’s now-dominant semiconductor industry drew from the diaspora of thousands of Taiwanese living in the U.S. who possessed hands-on experience in the U.S. industry, which at the time was the global hub for advanced chip manufacturing. At the company’s beginning, the majority of TSMC’s executive team had experience in the U.S. working for Motorola, Intel, or Texas Instruments.^[2] When China sought to replicate Taiwan’s successful policy push, they realized foreign talent was central and hired thousands of experienced engineers from Taiwan.^[3] Again and again, countries tailoring industrial policy to boost semiconductor manufacturing have recognized the centrality of experienced, high-skilled immigrants to get off the ground.

None of this is to argue that existing native-born workers are somehow less capable of operating leading-edge chip factories, but rather that drawing on the kinds of tacit process knowledge that can only be acquired first-hand will be key to catching back up to the manufacturing frontier. Ultimately, American engineers will acquire this kind of deep expertise themselves from experience as we build out the next wave of fabs, but we can dramatically speed up this diffusion of know-how by maximizing American factory managers’ freedom to hire top talent with the requisite experience.

2. Growing the skilled domestic workforce takes time but increases in chipmaking talent are needed immediately.

If CHIPS is successful, American colleges, universities, and companies will ultimately scale up workforce development efforts to meet the challenge of rebuilding leading-edge semiconductor production in the U.S., but it will take time. However, Congress’ $52 billion down payment on reshoring chipmaking is already starting to go out the door. The timelines for building and operating new fabs simply do not match the longer timelines for fixing domestic workforce pipeline problems.

The possibility that U.S. colleges might eventually produce a sufficient domestic labor force to fill the chip industry’s engineer and technician roles is not helpful in ensuring the near-term success of the CHIPS Act. Attempting to catalyze the industry and expand the pipeline of requisite workers represents a chicken-and-egg dilemma that will necessitate a big push of skilled immigration to help jump-start the industry. If the U.S. fails to advance its semiconductor industry due to a lack of skilled workers today, we will not be able to convince students to apply to these programs and pursue a career in an industry that is failing to grow tomorrow.

Workforce needs are not just about highly educated workers, but also the highly specialized construction workers with experience building complex elements of fab facilities like clean rooms and installing some of the most complicated machines ever built: extreme ultraviolet lithography machines. Since advanced fab construction is so rare in the United States, there are few (if any) ways for native-born workers to gain first-hand experience building these systems, which require absolute precision. Furthermore, given that the long-run demand for these skills is far from guaranteed due to its dependence on the success of the risky industrial policy itself, it is unlikely such workers would invest sufficient time and energy to get the skills needed. What does it benefit a U.S. construction worker to become an expert in building semiconductor clean rooms if the U.S. semiconductor industry is likely to fail due to lack of workers? In the meantime, the industry will face higher costs that will reduce future willingness to invest and expand due to the lack of these skilled workers.

3. The existing workforce pipeline depends on immigrants as well.

Even utilizing the existing pipeline of skilled workers being produced by U.S. universities is dependent on high-skilled immigration, as roughly two-thirds of U.S. graduate students in fields relevant to chipmaking are foreign-born. The status quo for these students already hampers U.S. competitiveness as major flaws in the current immigration system are allowing these students to be successfully recruited by other countries with better functioning high-skilled immigration systems. For example, over 45,000 foreign-born graduates of U.S. colleges have been recruited to Canada’s high-skilled immigration programs in recent years.^[4] This exodus is no surprise given that the insufficient supply of employment-based green cards that often leaves skilled workers stuck on temporary visas for a decade or more.

The argument that U.S. colleges produce enough skilled workers to fill the needed roles in the industry belies the fact that a significant portion of those skilled workers are themselves immigrants who will need a pathway to staying in this country.

4. An industry-specific pathway is merited.��

One potential counterargument for a semiconductor industry-specific visa is that we should simply expand the supply of high-skilled immigration in general. It is important to acknowledge that the U.S. should absolutely expand the overall supply of high-skilled immigrants, and it is true that a sufficient expansion in these workers could potentially meet the needs of the industry and allow it to be globally competitive. However, there remains a strong case for an industry-specific approach.

Chipmakers in the U.S. have to compete with high-paying firms in software and other sectors for talent. An industry-neutral perspective might conclude this is not a problem justifying government involvement; however, Congress has already privileged and subsidized chipmaking, deeming it a key national and economic security priority. We are now faced with the choice of doing whatever it takes to make these investments pay off or allowing them to flounder.

Second, a more targeted approach like picking which specific roles are facing “shortages” is less likely to succeed. Government generally has a difficult time identifying occupation or industry-specific labor shortages. Importantly, the case for an industry-specific visa does not rest on a precise estimate of the shortfall of workers the industry will need. Whether or not you believe industry estimates of engineering or technical talent shortages, granting chipmakers and their suppliers wider access to the global talent pool will inevitably give them a leg up. This will increase the odds of success of an industry in which policymakers have already agreed we have acute economic and national security interests.

Proposal: Boost CHIPS Investments with Targeted Immigration Reform

Coinciding with historic investments in new semiconductor fab construction and production, Congress should open new visa pathways for this industry to recruit talent globally. A targeted 10-year push specific to the chipmaking industry and its key upstream suppliers will substantially raise the odds that the United States succeeds in its goal of becoming a leading producer of the world’s most advanced chips.

Semiconductor production is arguably the most sophisticated manufacturing process in the world and requires deep pools of highly specialized workers with rare skills. Only a handful of sites in the world have combined the necessary capital, supply chain networks, machinery, and talent into successful hubs of leading-edge chip production. The United States, having fallen behind, is now in short supply of technicians and engineers with direct experience manufacturing the latest generation of semiconductors. Given the indispensable role of talent in the global race for semiconductor dominance, Congress should supplement its historic financial investments in new plants, R&D, and domestic upskilling with a new visa pathway that will enable the industry to fully tap into the global pool of experienced talent.

In this paper, we propose a new Chipmaker’s Visa that is tailored to the challenge of scaling up leading-edge domestic chip production over the next decade. By cutting through red tape in the immigration system and allowing chipmakers to hunt for the scientific and technical talent they need in the global labor market, the Chipmaker’s Visa would treat the semiconductor challenge like the truly urgent national imperative Congress deems it to be.

10-year program

The Chipmaker’s Visa program would be authorized to issue 10,000 new visas per year for 10 years with an expedited path to a Green Card not subject to complicated bureaucratic hurdles or per-country caps. This represents a concerted, one-time push to infuse the U.S. workforce with the specialized skills needed to dramatically ramp-up the kind of semiconductor industrial capacity that only exists in a few pockets of the world. It is also designed to pair human capital with the substantial investment incentives that Congress has already provided to enable one to reinforce the other. While Congress may disagree on many elements of immigration policy, there is a broad bipartisan consensus that reshoring advanced chipmaking is a critical national priority and that the available workforce is not sufficient to build and scale-up these complex facilities quickly. Thus, a time-limited visa specific to the industry should be a highly effective point of bipartisan agreement.

2,500 available each quarter, allocated by quarterly auction

Rather than attempt to identify the occupations chipmaking firms need most, this visa will take a more market-oriented approach, allocating visas by auction so firms can tailor use to their specific, unique needs. Every quarter, 2,500 visas will be auctioned off to qualifying firms. Those firms can then utilize those visas to hire skilled immigrants, subject to an overall minimum salary level that ensures the jobs are genuinely skilled. To ensure the visas are contributing to the industry, they must be utilized by firms within a year of being won at auction. Once a visa is used by a particular firm, its ownership immediately transfers to the sponsored worker.

Unlike annual visa allocations that give businesses one chance to sponsor and hire foreign talent, the Chipmaker’s Visa’s more regular allocations will allow manufacturers to more quickly scale up production or add workers or managers with highly specific skills and experience they cannot find on the domestic market.

Firms that have Chipmaker’s Visas can compete with each other to hire the best talent from abroad or from U.S. universities, incentivizing higher pay and more efficient allocation of the limited supply of skilled, specialized workers to where they are truly needed.

5-year visa, once renewable

The Chipmaker’s Visa’s longer-than-usual term will give firms certainty that they will have sufficient time to scale-up their investments in the U.S. and train domestic workers. Given the importance of tacit knowledge and first-hand production experience in leading-edge chipmaking, giving firms time to integrate experienced foreign-born workers into their production processes is essential to building the capabilities in the domestic labor force that are necessary to making chips in the U.S. long-term.

A focus on skills and wages, not degrees

Rather than prescribe education requirements or arbitrarily limit the use of the Chipmaker’s Visa to those with a particular college degree, the visa will be available to whomever can prove their skills are in demand with a job offer from a relevant chipmaking firm or supplier. Granting visas to firms using an auction ensures that they are only issued to the workers with the most in-demand skills and experience, rather than to replace native workers when they are widely available.

Limited by NAICS codes

To ensure this pathway is narrowly targeted to the chipmaking industry and closely associated suppliers, use of the visa (and the employment authorization it provides) will be restricted by North American Industry Classification System (NAICS) industry code. Commerce will publish an annual list of eligible NAICS codes derived from a regularly occurring supply chain analysis. Such analysis will identify relevant NAICS codes of semiconductor producers and those of mutually dependent industries and report its findings to Congress.

Broad work authorization

While large existing firms clearly have an important role to play in this industry, the success of a leading-edge, globally competitive industry in the U.S. will ultimately depend in part on its dynamism and competitive dynamics. The ability of young firms with fresh ideas and talent to challenge incumbent leaders—long a critical feature of the American economy that drives productivity growth—will be essential to stoking innovation in chipmakers new and old. Therefore, the Chipmaker’s Visa should be easy for early-stage startups to access.

While industrial policy in other countries often takes the form of structuring policy around large incumbent firms and so-called “national champions,” America’s global advantage is our culture and history of dynamism and entrepreneurship. This is why half of the world’s unicorns—private startups valued at $1 billion or more—are in the U.S.^[5] It is also at the center of the origin of the semiconductor industry in the U.S., when employees of the once-dominant Fairchild Semiconductor left to create dozens of important startups like Intel, National Semiconductor, and AMD.

Leaning into the strengths of the U.S. economy means crafting industrial policy that facilitates the rise of challengers and gives startups easy access not only to the same levers of support as larger peers, but also to the global talent pool. Chipmaker’s Visa holders would be free to work for any other qualifying semiconductor firm up and down the greater supply chain as defined by the U.S. Department of Commerce. While a more limited work authorization may seem to benefit an individual large firm, it is ultimately harmful to the industry’s long-term ability to learn and adapt in a hyper-competitive globalized market.

For this reason, big firms should be limited in the number of Chipmaker’s Visas they can utilize. No firm should be able to purchase more than one-quarter of available visas in a given year, giving a chance for smaller suppliers and their potential challengers to compete in the labor market for critical talent.

Salary floor to ensure high labor standards

While employers should have the flexibility to recruit the workers most valuable to the task of quickly building fabs and scaling up production, this visa program should come with a reasonable salary floor safeguard pegged at the national median earnings for full-time workers to ensure the visa is not used for low-skilled, low-wage labor. While we anticipate the vast majority of Chipmaker’s Visa users will be highly paid engineers or managers, some may be tradesmen. This benchmark is approximately in line with the median annual pay of pipefitters, plumbers, and steamfitters, for example.^[6]

Path to a green card after five years of sufficient earnings

Retaining the talent brought into the Chipmaker’s Visa is firmly in the country’s and industry’s best interest.

Under the status quo policy, discriminatory per-country caps detract from semiconductor firms’ ability to recruit and retain talent from across the world. At the same time, burdensome labor market tests and prevailing wage determinations that take many months add costs to firms and existing employees being sponsored for permanent residency without yielding any obvious public benefit. The Chipmaker’s Visa would cut through these broken processes, making an exception for a pressing national priority: attracting and retaining the world’s top semiconductor talent for our own firms and facilities. Therefore, the Chipmaker’s Visa will have a smooth, seamless path to permanent residency for anyone who earns at the 75th percentile of personal income (about $80,000 in 2021) for five consecutive years, exempting them from per-country caps, prevailing wage determinations, and the Permanent Labor Certification process. Upon meeting these conditions, workers will be able to self-sponsor and receive a quick decision from U.S. Citizenship and Immigration Services

This system that replaces opaque bureaucracy with clear and transparent requirements would increase certainty for both high-skilled immigrants and the firms that employ them—if someone is contributing significantly to the U.S. economy in a crucial industry and is following the rules, there should be no doubt from them or their employer that they are welcome to stay.

Dedicate visa auction fees to training American workers

Any chip industry-specific visa reform should be laser-focused on expanding the relevant skilled workforce overall. Allowing practicing companies greater access to the global chipmaking talent pool will facilitate learning among American workers, universities, and workforce training programs over time. However, we can also speed up this process by earmarking all visa auction revenue in excess of that needed to cover operating costs towards workforce development and domestic scholarships for students and workers up and down the semiconductor supply chain. Creating this new dedicated funding stream will accelerate the upskilling of American workers and make the United States a more attractive place for the world’s top firms to invest in the long-run. Revenue could, for example, be split between the National Semiconductor Technology Center—tasked in part with identifying and scaling relevant workforce training programs—and the National Science Foundation’s CHIPS for America Workforce and Education Fund, which issues workforce development grants.

One conservative estimate suggests that switching to an auction system for H-1B visas would yield a price of about $5,000 per visa.^[7] This estimate is a plausible price for our proposed Chipmaker’s Visa, suggesting the program could raise approximately $50 million annually or $500 million over the life of the program. This revenue could fund thousands of scholarships for upskilling or reskilling American workers or help scale-up ongoing training programs in communities building out their semiconductor industries.

Conclusion: A Narrow, Targeted Solution for a Bipartisan Priority

The Chipmaker’s Visa represents a bipartisan pathway to addressing bottlenecks to scaling up semiconductor production without reopening more fundamental questions about national immigration policy. It is narrowly tailored to the problem at hand, focused exclusively on what is a pressing bipartisan national priority. As an act of Congress, it would also be resilient to Executive Branch changes to immigration policy from one administration to the next. The ultimate success of the CHIPS and Science Act is by no means assured, but it is critical that we follow through and equip the funding that was appropriated with the other tools the sector and the country needs to finish the job. Well-designed immigration reform is the first such critical next step.