In 1965 the high-technology industry located along Route 128 in Massachusetts had about three times more employment compared to Silicon Valley. Over the next 10 years Silicon Valley overtook the Route 128 region in number of employees by 15 percent, and between 1975 and 1990 the rate of growth locally was three times as great. A significant reason Silicon Valley eclipsed Route 128 as the premier hotbed of technology companies may have been the relative lack of enforceable non-compete clauses in employment contracts, according to a study released by two researchers at the University of Toronto’s Rotman School of Management.
According to a press release put out by the school Monday, the husband-and-wife researchers April Franco and Matthew Mitchell
wanted to understand why the highly-successful technology region known as Massachusetts’ Route 128 was gradually eclipsed by Silicon Valley during the 1970s and 1980s. The northeastern region had laws that helped enforce non-compete clauses, while California did not. Using a theoretical model, the researchers found that non-compete clauses initially helped the northeastern region because the protection they provided encouraged companies to invent new ideas in an arena that did not yet have many.
But once the tech industry was better established and there was more competition, the major productivity driver became labour mobility. At that stage, California gained an advantage because its lack of non-compete clauses made it easier for employees to create their own ‘spin-out’ businesses based on knowledge developed at other firms a key reason for Silicon Valley’s success.