The Silicon Valley wage suppression conspiracy

by on March 25, 2014 at 12:15 pm in Economics, Web/Tech | Permalink

Many readers have asked me what I think of the email chain which shows evidence that Silicon Valley firms conspired to hold wages down, by refusing to engage in competitive bidding for workers’ services.

I would suggest caution in interpreting this event.  For one thing, we don’t know how effective this monopsonistic cartel turned out to be.  We do know that wages for successful employees in this sector are high and rising.  Many a collusive agreement has fallen apart once one or two firms decide to break ranks, as they usually do.  Without legal enforcement, or without an NCAA-like clearinghouse enforcement structure (also backed by the law), it is hard to find examples of persistently successful monopsonistic labor-buying cartels.  One reason is that workers can find means of switching firms which do not directly implicate the new hiring firm as the villain which plucked them away.  The most successful collusive agreements are not usually monopsonistic and furthermore they are often based on self-sustaining and self-interested norms which do not require articulation in the form of incriminating emails.

A second point is this.  Let’s say you knew that when you took a job at Apple or Google that no other Silicon Valley firm would bid you away.  You don’t need to have explicit knowledge of the workings of the cartel, rather you simply observe that other people in your general position seem to stay put rather than receiving fantastic outside offers.  Given that you have outside alternatives, you would demand, and receive, higher wages in the first place for moving to one of those firms.  This actually would increase wage compression and limit inequality, albeit while decreasing efficiency.  Still, workers as a whole would win back some of what they seemed to be losing, albeit not all of it.

Turkey Vulture March 25, 2014 at 12:30 pm

Imagine employees knew about an illegal, secret collusive agreement among a number of large employers. They would demand higher wages and a lot of the problem would be fixed.

What is the point of your claim? Even if it were right, most U.S. cartels try to keep their activities hidden because of the whole possibility of civil and criminal liability thing. There is no way for a prospective employee to differentiate lack of turnover due to collusion from lack of turnover due to high job satisfaction and the like. You are making a hand-waving argument to reduce the apparent damage caused to the competitive process by collusive conduct.

thebyurokrat March 25, 2014 at 12:37 pm

This is a very good point.

The second paragraph contains a far weaker argument. The question at hand is whether a cartel existed; if it did, it is prima fascia illegal under U.S. antitrust law. The evidence of economic harm need not be established by plaintiffs (though that would certainly arise as an argument presented in a civil suit). Further, that “it is hard to find persistently successful monopsonistic labor-buying cartels” does not mean this particular cartel was ineffective. Additionally, Tyler fails to define “persistence”; initial reports have this being in place for the better part of a decade. Is that not persistent?

Tyler’s support of competitive enterprise seems entirely inconsistent with his willingness, and apparent impulse, to waive away obvious anti-competitive behavior by major firms.

Steve Sailer March 25, 2014 at 7:32 pm

“Given that you have outside alternatives, you would demand, and receive, higher wages in the first place for moving to one of those firms.”

Okay, say, Google is trying to hire me and so is JC Penny/Kmart. I should go with JC Penny over Google because they don’t have a reputation for colluding?

Obviously, working for Google or Apple, even when they are breaking the law to hold down your pay, is better than working for 95% of corporations. What we are talking about here is how the giant pie these firms own gets divvied up between stockholders and employees. We have laws that restrict the right of management to restrain competition for employees, and those laws should be enforced.

Chris S March 25, 2014 at 8:06 pm

If you are in the running to work for Google, Apple, Facebook, Microsoft or Amazon, you are an elite candidate in the market and can probably find gainful employment at a host of lesser firms. A friend of mine pursued an offer from Amazon for the express purpose of being able to turn it down for good reasons – I don’t want to relocate my family – and drop that in conversations with other employers.

You phrase the question as: Okay, I can have $100+Complications+Good company, or $50+No Complications+Bad Company, when the real alternative is $98+No Complications+Anonymous Company.

DPG March 26, 2014 at 9:47 am

A guy I know got a Phd in Comp Sci and had a job offer from Google. He crunched the numbers and ended up going to law school because the pay was so much better in BigLaw.

This is a slam dunk case of companies with great market power using that market power for sinister ends. I mean, when a CEO explicitly writes in an e-mail that he doesn’t want to continue the conversation in writing because he’s afraid they’ll get sued, it’s pretty clear that they knew they were doing something wrong. At some point, you should stop doing mental back flips to defend these guys and just say, “Yup, they should get fried for this.”

Barry March 26, 2014 at 10:12 am

Chris, are you an economist? Because ‘assume that you know the insider collusion of elite firms’ sure beats ‘assume a can opener’ :)

Drifting March 26, 2014 at 11:38 am

It may be better to work for Penney.

Cost of a 3 bedroom apartment in Mountainview, CA (google HQ) $4000 +

Cost of renting a 3 bedroom house in Plano, Texas (Penney HQ) $1400

Average Google programmer salary $93k

Avarage Walmart programmer salary (can’t find Penney’s offhand) 66k

Unless you are a rock star, chances are you’ll spend far more of a percentage of your income working at Google than at a less glamorous place. You’ll also have better quality of life too. There are always people to replace you in Google. In Penney’s, not so much.

athEIst March 26, 2014 at 1:43 pm

And in Plano(plain old) Texas, it will be less glamorous.

Dan Weber March 25, 2014 at 1:03 pm

Yes, that second paragraph was kind of silly. It wasn’t easily observed by outsiders that few people were going from one company to another for a few years.

Barry March 26, 2014 at 10:14 am

Dan, the fact that few people were moving between certain jobs between companies A, B, C , ,,G could mean (a) a high-level and highly illegal conspiracy or (b) those companies take good care of their employees, so that they are generally satisfied and not leaving.

Tell me how you know which?

Chris S March 26, 2014 at 10:10 pm

The CEO email chain is prima facie evidence of the conspiracy.

Whether or not it was effective… another debate.

Rahul March 25, 2014 at 2:08 pm

+1

Tyler’s post sounded like a weak sauce apologetic for collusive cartels.

prior_approval March 25, 2014 at 2:34 pm

The chairman of the Mercatus Center has no need to question the benefits of cartels.

After all, this is what the Mercatus Center is about – ‘A university-based research center, the Mercatus Center advances knowledge about how markets work to improve people’s lives by training graduate students, conducting research, and applying economics to offer solutions to society’s most pressing problems.

Our mission is to generate knowledge and understanding of the institutions that affect the freedom to prosper, and to find sustainable solutions that overcome the barriers preventing individuals from living free, prosperous, and peaceful lives.’

Obviously, one of society’s most pressing problems has been that workers are paid too much in a competitive marketplace. It is unsurprising, as Adam Smith noted, that companies run by men in trade form cartels to deal with such a problem.

sp6r=underrated March 25, 2014 at 5:07 pm

Tyler Cowen has always been an apologist for capital at the expense of labor.

andy March 26, 2014 at 9:01 am

What if he is right?

Barry March 26, 2014 at 10:15 am

Considering just how bad and dishonest his arguments are in this case, I’ll worry about that only if some actual evidence shows up which supports his case. Enough to outweigh the existing evidence against his case.

dan1111 March 26, 2014 at 10:58 am

Dishonest?

charlie March 25, 2014 at 12:32 pm

employees or managers?

yenwoda March 25, 2014 at 12:37 pm

“workers can find means of switching firms which do not directly implicate the new hiring firm”

Right, that is easy for the employee who gets successfully poached. But the one who isn’t impressed with the new firm’s offer may very well mention his loyalty to his boss, especially if he knows about the agreement (which I expect wasn’t the biggest secret in the world). In the emails I seem to recall one of the CEOs sheepishly pretending that he thought the deal only affected senior employees, after getting caught trying to snag someone more junior.

Barry March 26, 2014 at 10:15 am

And the recruiter involved being fired ‘within the hour’.

Michael March 25, 2014 at 12:39 pm

Leave it to this blog to suggest a wage-suppressing cartel actually decreases inequality and improves working conditions. Seriously, do you have any shame?

Chris S March 25, 2014 at 1:06 pm

What does shame have to do with it?

It is a positive argument, not a normative one.

Barry March 25, 2014 at 1:40 pm

I would call it a garbage argument, which should be put to Econ 101 students as a final exam question.

Rahul March 25, 2014 at 2:10 pm

A intentionally ingenuous positive argument is shameful.

TMC March 25, 2014 at 1:18 pm

“Still, workers as a whole would win back some of what they seemed to be losing, albeit not all of it.”

Read to the end. Nothing Tyler has said is at all controversial.

Barry March 26, 2014 at 10:17 am

“Read to the end. Nothing Tyler has said is at all controversial. ”

Tyler: “For one thing, we don’t know how effective this monopsonistic cartel turned out to be. We do know that wages for successful employees in this sector are high and rising.”

If you don’t understand why this is (a) dishonest and (b) controversial, I suggest that you find an economics professor (who doesn’t work for the Koch Bros.) and ask him/her to explain it.

Chris S March 26, 2014 at 10:11 pm

Barry, why don’t you spare us the effort and explain it yourself?

prior_approval March 25, 2014 at 12:49 pm

‘I would suggest caution in interpreting this event.’

Best satire site on the web.

FE March 25, 2014 at 12:58 pm

Yes, I think the meta-joke being retold here is the one about how an economist sees something that works in practice and wonders if it could work in theory. So many layers to this blog.

Dan Weber March 25, 2014 at 1:05 pm

Do you know that wages were actually suppressed?

prior_approval March 25, 2014 at 2:05 pm

You mean along these lines? – ‘Emails uncovered by the DOJ show that top executives at Apple, Google and others entered allegedly illegal agreements to stifle wage growth and save their companies’ margins. The suit claims that the arrangements succeeded in artificially lowering wages and have in effect stolen an estimated $9 billion from over 100,000 tech employees. The class-action lawsuit got final approval from the 9th Circuit Court of Appeals last week, despite attempts by Apple, Google, Intel and Adobe to have it thrown out.’ http://jobs.aol.com/articles/2014/01/24/silicon-valley-wage-theft-class-action-lawsuit/

anon March 25, 2014 at 2:44 pm

I know nothing about this case in particular, but if you’ve ever read a complaint in your life, you’d know it always sounds like that, and that has no bearing on the merits of the case. View the number as an extreme upper bound.

Further, class certification is a pretty low bar. It says little more than that it’s better to deal with all the potential plaintiffs in one courtroom (i.e., that there are more than 40 or so of them, and that there are common features among the plaintiffs, that the class representatives are not atypical, and that the counsel for the class can adequately represent all the potential class members).

“A journalist was given a complaint by someone working for the plaintiffs” is easy to recognize and very common.

It might be a strong case, it might be a weak one. It might have impacted thousands of hirings or only a handful. You can’t tell from the complaint or the class certification.

Z March 25, 2014 at 2:52 pm

Do you know it does not matter? A conspiracy is a crime whether or not it was successful. That said, the laws do not apply here so it is a mute point.

Dan Weber March 25, 2014 at 3:06 pm

GP claimed it worked in practice, and asked why Tyler was discussing it theory. I posit that it had not and has not been shown that it actually worked in practice — although that was certainly the intent of the actors.

Dan Weber March 25, 2014 at 3:06 pm

Crap.

GP claimed it worked in practice, and rhetorically asked why Tyler was wondering if it could work in theory. I posit that it had not and has not been shown that it actually worked in practice — although that was certainly the intent of the actors.

FE March 25, 2014 at 3:17 pm

Some of the smartest CEOs in the world certainly *believed* they were suppressing wages, and I am inclined to believe them since they were in a position to know. TC’s counter that perhaps the suppression effect was smaller than the CEOs intended Is probably true, but I do not see a need for caution in interpreting the basic story.

Steve Sailer March 25, 2014 at 7:37 pm

In the half decade after Steve Jobs started this collusion conspiracy, Apple became the highest market cap company in the world. The notion that Steve utterly failed at his efforts to illegally extract some of that market cap from his employees’ paychecks is not exactly consistent with Jobs’ lifetime track record at being extremely good at getting what he wanted.

James Hare March 25, 2014 at 10:09 pm

Saying nothing of the fact that Jobs had demonstrated from his earliest business dealings that he was more than willing to shortchange his colleagues even if his “contribution” was simply finding the smartest guy to do the work. He screwed Woz over a couple of thousand bucks. Why would he think twice about screwing people he didn’t know?

TMC March 25, 2014 at 1:20 pm

Since conspiracy theories outnumber actual conspiracies by an order of a magnitude, caution would be in order.

Barry March 25, 2014 at 1:41 pm

Yes, but there’s extensive evidence of this, including evidence of enforcement actions (e.g., the recruiter who was fired for violating it).

Dan Weber March 25, 2014 at 1:43 pm

“Conspiracy theory” isn’t used in the traditional sense. There are actual email chains that have been produced in which people agreed to do this.

Steve Sailer March 25, 2014 at 7:41 pm

“Since conspiracy theories outnumber actual conspiracies by an order of a magnitude, caution would be in order.”

The government has released emails of some of the most famous names in American business — Jobs, Dell, Whitman, Schmidt, etc. — conspiring together. Considering how little publicity this conspiracy got until recently, perhaps the opposite might be truer than we think: there are lots of conspiracies out there that we don’t have conspiracy theories for.

Chris S March 25, 2014 at 8:10 pm

One data point does not compelling evidence make.

There may well be 10x theories / 1x actuals, and we have no good ability to tell the difference ex ante. Finding one in the actual case does not demand an adjustment of priors.

Steve Sailer March 25, 2014 at 9:20 pm

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” — Some wacko conspiracy theorist in 1776

An economist named John Connor (not the Terminator guy) has gotten rich building a database of international conspiracies in restraint of trade that he uses as an expert witness in antitrust suits. It turns out that there are a lot more such international conspiracies than poorer economists had assumed:

http://isteve.blogspot.com/2013/09/the-cartels-are-out-to-get-you.html

William Wright March 26, 2014 at 12:49 am

You are ludicrously pretentious, presumptuous, and mistaken. Where do you get the idea that he adjusted his prior opinion because of one subsequent DATUM? (Not “data point”.)

Chris S March 26, 2014 at 9:53 am

I have no idea if he changed his priors. However, having debates is at the root an attempt to get each other to adjust one’s priors.

“data point” – pedantic much? You probably still insist on yelling at people who use data in the singular, as if language never evolves.

Barry March 26, 2014 at 10:19 am

Blithe dismissals of conspiracies is just as foolish as blind acceptance of all possible conspiracies.

And when there is massive evidence in favor, it’s far more foolish (or dishonest).

Eric with a c March 25, 2014 at 12:50 pm

This is obvious nonsense. Wages for this market are set by norms, with supply and demand gradually effecting those norms. If many of the major players agree to drag their feet on the actual fair value of talent, it will drag the whole market down.

Let’s say the market value of a project lead changes from 150k to 200k. If Apple and Google agree not poach employees, many of their engineers will stay on at the previous wage. Companies that are not part of the cartel, say Zappos, will start to poach employees, but they are unlikely to give a 33% raise, unless the person in question is a verified superstar. They are much more likely to give a 15% raise to 175k. At that price Zappos can probably find most of the talent they need, while many of Apple’s employees will look at a 15% raise and not want to move to Los Vegas for it.

Wages are not set in a pure competitive auction. If Apple, Google, et. al., can anchor expectations, they can drag down the wage structure for everybody.

Chris S March 25, 2014 at 1:09 pm

“drag down the wage structure for everybody”

Isn’t that what TC said? Pay attention to the second sentence.

“This actually would increase wage compression and limit inequality, albeit while decreasing efficiency. Still, workers as a whole would win back some of what they seemed to be losing, albeit not all of it.”

Jon Rodney March 25, 2014 at 4:53 pm

That would only be true *if* employees were demanding higher wages because they were aware of a cartel-like arrangement. There’s no reason to think that was the case.

Chris S March 25, 2014 at 8:14 pm

Mostly true – the motivated could tell. The Valley is a small place and people talk.

That said, I imagine most Google recruits take the job first and the pay second, knowing that, regardless of the Google experience, having Google on the resume produces a halo effect that lasts.

Google employment as signaling? Based on my understanding of what actually goes on there, 80% are working on mundane stuff just like everyone else, and only the 20% are truly given “stretch” assignments. Good luck discovering which is which in a typical interview process.

Steve Sailer March 25, 2014 at 7:43 pm

“limit inequality”

That’s pretty funny. By suppressing income for 60-hour-per-week computer engineers by say $25k, Michael Dell and Steve Jobs are Fighting Inequality by adding billions to their net worth.

Chris S March 25, 2014 at 8:15 pm

The empirical fact is they are limiting inequality.

The normative fact is that there is an imbalance of negotiating power.

(Yes I am feeding the trolls, even though Steve isn’t quite in that category due to persistence.)

Steve Sailer March 25, 2014 at 8:42 pm

Yeah, because the real inequality problem in the U.S. doesn’t have anything to do with the Forbes 400. No, the real problem is uppity software engineers thinking that they deserve, under the laws, an extra $500 per week.

Chris S March 26, 2014 at 9:56 am

Again, positive vs normative.

Suppressing income of anyone and forcing it into a band by definition lowers inequality.

Whether it lowers inequality in the “right” way is a separate debate altogether.

Anthony March 26, 2014 at 1:38 pm

It’s not the Forbes 400 bidding up all those Potrero Hill 2-bedroom houses to $millions each.

People may abstractly worry about the billions that the wealthiest people have, but what really gets them worked up is people making a million a year using that money to bid up amenities (like houses) to where people making 50k a year can’t afford them anymore.

Barry March 25, 2014 at 1:43 pm

In addition, this would have harmed the careers of many people. If you were in position X, and in a state to go to position X+1 (e.g.,, managing a larger software project), you would have had potential employers not recruiting you, and your current employer well aware that your external opportunities were sharply limited. This meant that they didn’t have to promote you or lose you (as much).

Steve Sailer March 25, 2014 at 7:44 pm

The way you get decent raises as a corporate employee is by threatening to leave. Otherwise, you get a couple of percent raise per year.

Chris S March 25, 2014 at 8:16 pm

+1

True dat.

Barry March 26, 2014 at 10:21 am

Adding on to Eric’s argument, it’s likely also that moving out of the big company’s networks in Silicon Valley is a major career shift. In the absence of a conspiracy, I’d expect it to have the effect of making it harder to move back in, or at least imposing a substantial cost.

If anybody wants a supporting argument, just meditate on why there is such a thing as ‘Silicon Valley’ in the first place.

jon March 25, 2014 at 1:09 pm

The only reason these companies do this because they are liberal multinationals. Liberal ideology has permeated multinationals, because of liberal propaganda at universities, and here you can see the negative aftereffect. The free market works best always, and the government should make sure of that.

Chris S March 25, 2014 at 1:14 pm

I thought these guys were all libertarians, not liberals?

I’m sorry, talking too much, I should let someone else have a turn.

Barry March 25, 2014 at 1:45 pm

“The only reason these companies do this because they are liberal multinationals.”

I’m sure that right-wingers would never, ever collude.
And I’m surprised that Scottish businesses in the 1700′s were dominated by ‘liberal multinationals’ (see Smith, Adam, and tradespeople never gathering, ….).

KPres March 25, 2014 at 5:36 pm

Well, it is the liberals who are always scolding everybody about how society needs to be more cooperative, how evil “cut-throat” capitalism is.

Seems to me these people were just putting some of that good ‘ol cooperative spirit to use. You guys should be celebrating them.

So Much for Subtlety March 25, 2014 at 7:38 pm

I don’t know about Scottish multinationals, but many English multinationals were notably liberal. Look at Charles Darwin’s extended family – pottery makers on a global scale. But also anti-slavery campaigners.

Chip March 25, 2014 at 9:16 pm

Liberal then is different from liberal today.

Joe Torben March 26, 2014 at 5:11 am

Liberal in the US is different from liberal in the rest of the world, and also from liberal in times past.

There, fixed that for you. You are welcome!

Aaron March 25, 2014 at 1:14 pm

“Let’s say you knew that when you took a job at Apple or Google that no other Silicon Valley firm would bid you away. You don’t need to have explicit knowledge of the workings of the cartel, rather you simply observe that other people in your general position seem to stay put rather than receiving fantastic outside offers. Given that you have outside alternatives, you would demand, and receive, higher wages in the first place for moving to one of those firms.”

I’m having trouble following your logic here – isn’t the entire point that you DON’T actually have outside alternatives to your current position of comparable interest/stature/quality/etc because the major firms aren’t offering them to workers? How is the “you would demand, and receive, higher wages” mechanism supposed to operate?

Furthermore, we know from looking at other labor markets that wages can be sticky for years even when individual firms are very competitive: http://www.motherjones.com/kevin-drum/2013/11/starting-salaries-attorneys-are-pretty-weird

dirk March 25, 2014 at 2:02 pm

Agree. His logic doesn’t flow. It would work if going to work at a cartel firm meant that whatever outside alternatives that existed before working at the cartel firm disappeared after you took the job, but that wouldn’t be the case. If that’s not the case, the cartel was never a cartel in the first place. If what we have is a semi-cartel: some companies but not all colluding, the result is simply less hiring competition overall, lower wages overall. The semi-cartel (the companies you couldn’t move among) would be viewed by a prospective employee as a single, large employer.

Chris S March 25, 2014 at 1:21 pm

You have the opportunity to negotiate BEFORE entering one of the cartel’s firms.

Knowing that, once in, you’re stuck with your choice, you would demand to be compensated for that.

In fact, unless they collude at the candidate level – which is a real possibility – the cartel firms would bid against one another to win you.

The cartel firms can also afford to pay you a more, because once in, the fact that you are unpoachable adds value.

So you do better going in.

Once there, you probably won’t get market value, because 1. you can’t move to a rival due to the cartel and 2. since the firm knows you have poor alternatives, they can stiff you on promotions/raises, at least at the margin, because, whaddayagonnado???

Barry March 25, 2014 at 1:46 pm

Chris S March 25, 2014 at 1:21 pm
” You have the opportunity to negotiate BEFORE entering one of the cartel’s firms.

Knowing that, once in, you’re stuck with your choice, you would demand to be compensated for that.”

First, what part of ‘secret agreement’ do you not understand?

Second, ‘you would demand to be compensated’ – yeah, right.

Chris S March 25, 2014 at 2:24 pm

The part of “secret” I understand is it stays private only as long as it cannot be observed. This has been an open secret for a long time. All of these firms have scads of recruiters on the staff, who know which firms they can poach from and which they can’t – especially since most recruiters are paid or promoted by bringing in qualified candidates, they turn over every stone unless they are explicitly told not to touch a particular stone.

These recruiters then go out drinking with their friends, talk about how they are not allowed to call into Google, and all the engineers nod and say, you know what, I never get calls from Facebook despite my phone ringing all the time from all these other out-of-valley companies, and none of the new guys worked for any of these firms…

“-yeah, right.” I will try to use this argument in my next business meeting, brilliant!

Barry March 26, 2014 at 10:26 am

‘These recruiters then go out drinking with their friends, talk about how they are not allowed to call into Google, and all the engineers nod and say, you know what, I never get calls from Facebook despite my phone ringing all the time from all these other out-of-valley companies, and none of the new guys worked for any of these firms… ‘

Assume a perfect market for information within the better-connected people in Silicon Valley.

Further, assume that this perfect market for information also applies to people ‘breaking in’ to the job market in Silicon Valley, so that they can weight that (assumed solidly know, rather than rumored) item into their job ‘demands’. Where they can make ‘demands’, long before they’re actually in the market.

Chris S March 26, 2014 at 10:14 pm

I can’t tell if you are trying to set up assumptions to make some limited point; or trying to build a straw man of assumptions to whack at, while never actually getting around to take the whack.

Just another MR Commentor March 25, 2014 at 1:29 pm

Silicon Valley employers need to do whatever is necessary to stay the engine of innovation for the American economy. This problem could be remedied if we had smart government policy which allowed for more immigration to fill the huge number of vacancies in the Valley. This is yet another failure of government policy.

DJF March 25, 2014 at 1:52 pm

“”””more immigration””””

Maybe the big tech firms should get together and conspire to pretend that there are no American tech workers and instead they must import them.

Oops, they already do that

Just another MR Commentor March 25, 2014 at 2:16 pm

Actually it’s been well documented that there’s a severe lack of technology workers in the US right now and it’s crippling the Valley’s ability to come out with innovated new products. This is a lose lose for everyone.

Chris S March 25, 2014 at 2:25 pm

I try to hire tech resources all the time and have in several geographic locations. There is a definite shortage.

Dan Weber March 25, 2014 at 3:08 pm

First, realize that JaMC is our court jester, saying all sorts of bullshit.

Second, try harder to hire people. It’s quite possible your recruitment process sucks.

Chris S March 25, 2014 at 3:33 pm

True, it is possible we suck, granted.

Barry March 26, 2014 at 10:27 am

“I try to hire tech resources all the time and have in several geographic locations. There is a definite shortage. ”

I have never seen anybody back this up with actual job postings and *salary figures* for their company.

Dan Weber March 26, 2014 at 1:55 pm

Lots of companies aren’t very good at hiring, and lots of candidates aren’t very good at job seeking.

To a company looking to hire to fill a role and failing, I would suggest all of

– paying more salary

– being more aggressive in advertising for candidates

– be more willing to spend time looking through bad candidates for good candidates

– find people who are just marginally able to do the job and train them on what they are missing

Yes, those are hard. Yes, they cost money. If finding the right people is important to your company, you need to lump it. Things that a crucial to your company’s success need a lot of effort.

Mo March 25, 2014 at 5:39 pm

Yet there’s sufficient talent to staff numerous selfie, messaging and anonymous gossip apps.

Chris S March 25, 2014 at 8:20 pm

Those can be banged together by five college friends in two weeks. The market is overinvesting in those by medium term standards. Check back in five years and see who is still standing. Also part of these crappy apps is just showing you can make something happen and meet some VCs, the real action is in your third venture, or your seventh.

These are auditions, not companies.

Steve Sailer March 25, 2014 at 8:37 pm

“Actually it’s been well documented that there’s a severe lack of technology workers”

It was on p. 13 of my Econ 101 textbook: “In economic logic, there are no such thing as shortages, except when billionaires say there are.”

Donald A. Coffin March 25, 2014 at 10:24 pm

Agree.

If there’s a shortage, we should see increasingly rapidly rising compensation, right? Which this collusive agreement was designed to prevent.

Chris S March 26, 2014 at 9:57 am

I heard that the summer interns at Facebook got Teslas. Yes, $90,000 electric cars.

Is that rapidly rising compensation?

Dan Weber March 26, 2014 at 10:33 am

That one is very hard to believe. Leasing very expensive, limited-production-run cars for interns? How do you keep your more valuable senior employees (those who have 1 year of work experience after college) around?

Barry March 26, 2014 at 10:27 am

“Actually it’s been well documented that there’s a severe lack of technology workers in the US right now and it’s crippling the Valley’s ability to come out with innovated new products. This is a lose lose for everyone. ”

Where ‘well-documented’ means ‘by people with a vested interest’.

Komori March 26, 2014 at 1:35 pm

Speaking as a high tech worker, we’re certainly having trouble hiring qualified people.

We have no problem interviewing them, mind. But corporate HR (in California, yes) is under the impression than Austin’s cost of living is the same as rural Alabama, and makes their offers accordingly.

Which highlights the real problem that’s been documented. CEOs aren’t satisfied with the current supply of _cheap_ talent.

ummm March 25, 2014 at 1:46 pm

seems overblown. out of a company with thousands of workers how often does poaching occur? it’s probably rare

also these are among the most successful companies in the world. whatever they’re doing seems to be working

DJF March 25, 2014 at 2:25 pm

If poaching is so rare why did these companies bother coming up with an agreement to stop it?

“”””whatever they’re doing seems to be working””

Conspiring against their workers.

ummm March 25, 2014 at 2:37 pm

i think that the agreement applies to superstar employees rather than run of the mill employees. Apple employs 1000′s of ppl in their HQ, but maybe the top 10 re at risk of being poached. If this went to court, would the others be entitled for compensation, including the janitor for example?

Chris S March 25, 2014 at 2:26 pm

Poaching happens all the time, at least in tech.

The best way to demonstrate you can work for company X is to be working for company Y in the same function.

I get recruiter calls all the time trying to poach me, so does everyone else in this industry.

collin March 25, 2014 at 1:48 pm

This seems like some kind of grand rationalization of anti-market behavior by the modern robber barons. Most likely it probably has not had much effect (let us say the way a liberal think of worst aspects of teacher unions.) but it does suggest a consolidation of wealth will long term turn into a crony capitalism scheme to hurt the average family.

dirk March 25, 2014 at 1:49 pm

Agree the attempt to establish a cartel may not have been successful, but the attempt tells us that these firms do worry a lot about suppressing wages. When their CEO’s talk about expanding immigration because it’s good for the country, good to keep in mind which tiny fraction of the country they are really concerned about.

Chris S March 25, 2014 at 8:26 pm

They don’t suppress wages – not at this level – they suppress turnover. Turnover is expensive, and limiting employees’ options is a great way to get them to work on the weekend.

Facebook has a market cap of $165B (today) and 6400 employees (12/2013). Paying a few $10k here and there is truly trivial.

Separately.. all this handwringing for a few employees, a few hundred thousand at most. Does this at all affect the macro? That said, I guess it is called “Marginal” revolution, not Average or Mean revolution…

Barry March 25, 2014 at 1:55 pm

Tyler: “We do know that wages for successful employees in this sector are high and rising.”

1) Do we?
2) What would they be in the absence of collusion?
3) Why is a professor at George Mason making an argument which an Econ 101 student[1] should be able to tear apart?

[1] Not one from George Mason, of course.

Barry March 25, 2014 at 2:56 pm

I realized that what Tyler is saying can be stated as:

Hypothesis: X reduces the amount of Y.
Tyler: We can’t say that because Y is rising.

This is two errors – among others, Tyler is throwing away ‘ceteris paribus’, with no justification.

Chris S March 25, 2014 at 8:28 pm

Okay, I am conclusively feeding the trolls here, but I have seen no similar statement in this post. Please provide evidence.

lark March 25, 2014 at 1:56 pm

I’m in the field and at one point in my career I was a very highly ranked engineer (top 5%) in a large technical lab. One thing I have always found puzzling is the gap between what the op engineers produce and what they are paid. The standard statistic is that the top echelon is 10x more productive. I think from my experience this is true. But the salary ranges don’t come near to expressing that. Of course this collusion helps to explain it.

This policy of collusion results in good engineers having an upper middle class income but no more than that, especially in high cost areas. I think the really excellent folks are quite under paid. This is especially true if you take into account the hazards of the career – changing skill sets, youth preference, outsourcing etc. (The lab I worked at was essentially dismantled and sent to India – which was not necessarily a clever strategy, the company is in technical and market decline.) If the stars were able to get even half of their worth I think the field would be more attractive to the best candidates.

But aside from all this I just want to comment on our extraordinary ethical decay. No longer is the law the law – for the powerful. Nowadays when the law breakers are the elite, law breaking is subject to these amazing qualifications. “Well, since they weren’t necessarily effective at their criminal goal, let’s not get worked up about the law breaking okay?” I mean really. How long are people going to put up with this?

Chris S March 25, 2014 at 2:29 pm

My belief is that high end tech workers are not that great at negotiation and prefer to keep their heads down in their labs, playing with the toys, than impressing the business people.

Engineering undergrads are always impressed by the relative high starting salaries, but fail to understand that those top off in the mid 100s. It is well known that to get the big bucks you have to move to management or sales.

Barry March 25, 2014 at 2:58 pm

In addition, this is an illustration of the market power that comes from superior knowledge of the markets.

Dan Weber March 25, 2014 at 3:13 pm

Engineers: read this and negotiate a better salary.
http://www.kalzumeus.com/2012/01/23/salary-negotiation/

Steve Sailer March 25, 2014 at 8:34 pm

Yeah, screw ‘em, what have nerds ever done for humanity?

somaguy March 26, 2014 at 1:52 am

“Engineering undergrads are always impressed by the relative high starting salaries, but fail to understand that those top off in the mid 100s.”

Just so you know, this isn’t remotely true. Starting compensation for a new grad at a top-tier company is in the mid 100s. After a few years breaking 250 is easy.

Dan Weber March 26, 2014 at 10:34 am

That really really depends on location.

But the best way for engineers to raise compensation is to switch jobs as needed and be able to negotiate better than a potted plant.

Dan Weber March 26, 2014 at 10:40 am

Sorry for the double, but even Google peaks around $250K in Silicon Valley for senior software engineers. I know a guy who is probably one of the top 10 JavaScript developers in the world and while we didn’t discuss exact numbers Google wasn’t breaking $200K to try to get him to move to SV. (And he didn’t move, because housing would have eaten the majority of his increased pay even if he reduced his standard of living.)

There are exceptions, but even for the very smart it’s not “easy” to “break 250.” The stars have to align just right.

Brandon March 26, 2014 at 3:31 pm

Glassdoor published the average software engineer salary for the top 25 companies. Only one topped $150k. Only the top two could arguably be considered mid 100′s. And these are average, not starting.

http://www.glassdoor.com/blog/25-highest-paying-companies-software-engineers-2013-glassdoor-report/

But going back to the original post, topping off in the mid-100′s means topping off pretty damn high up the economic food chain.

Chris S March 25, 2014 at 8:29 pm

One more thing Lark- before you lament the current state of affairs, read some history. Our time is neither the best or the worst, but I’d place it somewhere in the 90th percentile.

GeoffBr March 25, 2014 at 1:58 pm

I would like this post to drive to a clear conclusion. Should monopsonistic labor cartels be permitted because they are difficult to effect, difficult to detect, and / or disadvantage workers less than one might initially believe? If so, at what level do they become justifiable? If not, isn’t this hand-waving?

Barry March 25, 2014 at 2:59 pm

It’s hand-waving.

Turkey Vulture March 25, 2014 at 5:26 pm

That is my conclusion as well.

MikeDC March 25, 2014 at 2:16 pm

OK, let’s take the bull by the horns and ask whether this sort of collusion should be illegal.

It seems to me that the truly free-market response is to say that if a collusive agreement exists without a formal legal structure supporting it, it might have some efficient properties. When it’s no longer efficient (profitable?/enforceable?) the collusive agreement should break down.

Thus, the presumption should be to allow collusion. I’d rebut that presumption if I saw it harming the rights of others, but what right is being harmed here? There’s no right to have people bid against each other for your labor. That’s outlandish. A basic libertarian version of freedom of contract starts and stops with “I can make any offer I want” and “I can say no to any offer I want”.

Now obviously we have a lot of regulations and exemptions piled on top of that, but from a libertarian perspective the list of exceptions should be quite small and should exist do to some very obvious harm. I’m not sure I see that here. The article (and this article is all I’ve read of it, so perhaps there’s more) doesn’t state that the companies refuse to hire people from other companies on the list, just that they refuse to cold-call, lure, and get into bidding wars against each other.

I could see a prohibition against collusion where Company A and Company B simply refuse to hire anyone employed by the other firm. That prohibition wouldn’t be much different than long-standing prohibitions against unconscionable contracts and contracts that are illegal because they alienate inalienable rights (e.g. just as you can’t sell yourself into slavery, you can’t totally alienate your right to form contracts with others. It could be argued that because the proposed collusion- A can’t hire B’s employees no matter what and vice versa- totally prohibits contracting with a group of people, it would be illegal under even a pretty draconian legalistic libertarianism). But… it’s less clear to me that an agreement between A and B not to eat off each other’s plate unless the food gets up and walks over itself would constitute a breach of that sort of legal doctrine.

Barry March 25, 2014 at 3:00 pm

MikeDC March 25, 2014 at 2:16 pm

” OK, let’s take the bull by the horns and ask whether this sort of collusion should be illegal.

It seems to me that the truly free-market response is to say that if a collusive agreement exists without a formal legal structure supporting it, it might have some efficient properties. When it’s no longer efficient (profitable?/enforceable?) the collusive agreement should break down.”

This doesn’t follow at all. The fact that A, B and C were able to collude (note, to reduce the welfare of D through Z) has nothing to do with efficiency.

Barry March 25, 2014 at 3:17 pm

I think that this serves to demonstrate the need for consideration of what ‘efficient’ means. This collusion is Pareto-efficient – if it were to magically vanish (due to waving of Friedman’s Wand of Ceteris Paribus’, for example), the people colluded against would be better off, but the people colluding would be worse off. Of course, everybody else might be better off, as well, due to increased productivity. Remember, this arrangement was not intended to be efficient, but rather, extractive.

MikeDC March 25, 2014 at 3:39 pm

Yes. But we could also posit conditions in which everybody else might be worse off. As in: Company A raids Company B’s key employees to prevent being passed in a technological leap. In this scenario, profits collapse, valuable products don’t get produced (instead of the market determining which products are valuable, the competing versions never get to market), and everyone ends up worse off except the guys who got the windfall from switching jobs. Truthfully, I don’t have a sense of where the Goldilocks point of competition is.

Steve Sailer March 25, 2014 at 8:18 pm

If job-switching is costly, then employers can offer employees contracts.

Steve Sailer March 25, 2014 at 7:23 pm

Tyler’s argument boils down to assuming he knows more about how to get rich than Steve Jobs, Eric Schmidt, Meg Whitman, and Michael Dell do.

Chris S March 25, 2014 at 8:33 pm

Why? I don’t think getting rich has anything to do with identifying general rules about economics. It has a lot more to do with working your ass off and conspiring to be in the right place at the right time.

“Oh yeah smarty pants then why aren’t you rich?” says nothing about the actual argument. Its about as good as yelling NERD and giving TC a wedgie.

skh.pcola March 25, 2014 at 2:17 pm

Tyler urges caution in condemning what he says might have been an unsuccessful attempt to break the law. I’m waiting with bated breath to see his post advocating that bank robbers shouldn’t be arrested before they are running out of the bank’s door with sacks of loot.

ummm March 25, 2014 at 2:31 pm

but no one knows for sure if laws were broken. that’s why were having this debate

Barry March 25, 2014 at 3:09 pm

So far it certainly looks that way; Tyler is demonstrating some amazing inability to see here.

spencer March 25, 2014 at 2:22 pm

Man, you can dream up the most convoluted rationals when your mythology is threatened.

Bill March 25, 2014 at 2:25 pm

This is not atypical conduct. A few years back some oil and chemical companies were investigated and I believe charged with wage suppression through an exchange of wage ceilings for chemical and other engineers. One of the claims was that this information exchange helped make the market work better because employees might exaggerate their compensation when seeking another job. Good try, but the argument didn’t work.

Steve Sailer March 25, 2014 at 8:20 pm

If you read 19th Century American business history, practically the first thing on the agenda for any new industry was for all the owners to get together at a hotel and set up a cartel. What Jobs, Schmidt, etc. did was just Good Old Americanism.

Chris S March 25, 2014 at 8:35 pm

Agreed, in direction. Completely disagree, in magnitude.

whatsthat March 25, 2014 at 2:31 pm

How is this supposed to work if everyone isn’t in on it? Most notably, Microsoft are absent from this. Wouldn’t the presence of such a large competitor not part of the agreement make a cartel ineffective?

ummm March 25, 2014 at 2:39 pm

maybe they declined to join

Barry March 25, 2014 at 3:10 pm

Or were smart enough to not leave a paper trail.

Or were not as critical; if there collusion covered enough of the Silicon Valley Big Software firms, that could well have been enough to benefit the colluders.

Dan Weber March 25, 2014 at 3:17 pm
Steve Sailer March 25, 2014 at 7:19 pm

Zuck wants to exploit workers legally by paying off politicians in huge campaign donations to give him more H-1B visas.

Chris S March 25, 2014 at 8:36 pm

There are the top five or ten companies comprising some small fraction of the market – 5%? 1% – and the rest of the industry is in myriad other companies. My read is that this cartel, though possibly real, was completely ineffective at a macro level.

Chris S March 25, 2014 at 2:39 pm

This is at the heart a value-destroying strategy. It does lead to immediate gains to the cartel company – you can pay them a bit less, peanuts really in these businesses, and you don’t lose a key engineer off a big project.

But in the medium run there is reduced value because people cannot move somewhere they are more valuable. A simple example, maybe an engineer is bored with Google technology and would be more productive at Facebook.

I believe the tech companies are moving to non-market ways to limit competition because they are running out of ideas. Proof point #1 is the amount of cash Google has. If they had positive value projects, they would do them instead of having the cash earning no return.

MikeDC March 25, 2014 at 3:20 pm

Four points come to my mind, all of which focus on the nature of software development as very human capital intensive.
1. “A key engineer off a big project” probably has disproportionate ability to affect profitability. If he leaves at a key moment, it could set back the project immensely. In the context of software development, where it’s really hard to divorce personalized knowledge from firm knowledge, this is a real problem.

Lack of competition is a problem, but we could also imagine there might be problems in a hyper-competitive market. Suppose Google knows Apple is ahead on a new class of software service. So they go recruit the guys in charge of the Apple project, pay them triple what Apple can pay, and leave Apple dead in the water (In fact, Google has made a pattern of this with “smaller fish” companies).

2. Maybe I missed it, but the article doesn’t say people can’t and don’t move elsewhere. It says firms aren’t poaching each other. Presumably an employee who looks would still be considered. I’d consider this a much worse problem if they’re not.

3. Winner’s curse. A lot of software development lies in the expertise and motivation of the guys doing the development. And there’s not really much certainty in which software platforms are going to be profitable hits. In these respects, hiring a software engineer is much more prone to the winner’s curse than hiring lots of other classes of workers.

Steve Sailer March 25, 2014 at 7:18 pm

You know, the situation is like the Red Sox trying to hire away a key Yankee employee like former closer Mariano Rivera in the middle of a pennant race. Think how disruptive that would be and how much bargain power Rivera would have had late in the season.

How did the Yankees deal with that?

Oh, they signed him to a contract.

If Apple has key employees whom they can’t afford to lose to Google, they could negotiate contracts with them, too.

Chris S March 25, 2014 at 8:40 pm

Contracts are problematic because tech companies claim to be egalitarian, especially within tech teams. Everyone’s idea deserves a hearing, everyone is valuable – though some have better ideas and are more valuable.

Offering contracts to some would move towards contracts for all, which makes tech companies less flexible than the current at-will arrangement. Also being at-will incents employees to work overtime and give extra effort.

Contracts are a slippery slope no one wants to step on. At least publicly.

MikeDC March 25, 2014 at 9:26 pm

Theoretically yes, but in practice this underscores the point. Baseball has a big fat anti-trust exemption and contract parameters are uniform at least with respect to certain key terms collusively agreed upon by both the Red Sox and Yankees. As well as the player’s union.

Wide scale employee contracts in the software biz would be harder to make work both for the reasons Chris S states and because negotiating and enforcing contracts is an expensive pain in the ass. It’s manageable when you’re talking about a few key employees, but if you’re talking about hundreds or thousands of employees, you’re going to need a huge legal department and your employees’ higher salaries are also in part going to be captured by the private attorneys they hire to go after you.

In short, you bleed money and flexibility, and perhaps worst of all, you set course for a very litigious employment environment.

Without passing judgement on whether it’s “right” or not, moderate collusion on the part of employers is an obviously lower cost alternative.

Steve Sailer March 25, 2014 at 8:31 pm

You know what would be an even surer way to make sure some greedy employee doesn’t disrupt a big project by threatening to quit unless he gets paid more?

Repeal the 13th Amendment.

Engineer March 25, 2014 at 10:14 pm

Lack of competition is a problem, but we could also imagine there might be problems in a hyper-competitive market. Suppose Google knows Apple is ahead on a new class of software service. So they go recruit the guys in charge of the Apple project, pay them triple what Apple can pay, and leave Apple dead in the water (In fact, Google has made a pattern of this with “smaller fish” companies).

“Rock Star” engineers (to use the term that our VP marketing likes to say in front of our customers) should be granted revenue shares in the products that they are developing. This gives them skin in the game in a manner that is more appropriate than stock options.

Chris S March 26, 2014 at 9:59 am

They do, at organizations called “start-ups”.

ralph March 25, 2014 at 2:41 pm

Oh, boy. Personal: I have witnessed it in action. Intellectual: that is the not the weakest response I’ve ever heard, but it is very, very close. I read Tyler because when he’s wrong, he usually supplies a challenging argument. This…. makes him smell. Makes him smell. Smelling is the beginning of the lack of credibility.

As to whatsthat: the absence of a company on the charge list doesn’t mean there wasn’t evidence. It just means they weren’t charged. Mostly, this charge seems to be geographically centered — Microsoft, obviously, is largely in Redmond.

whatsthat March 25, 2014 at 3:08 pm

The flight from San Francisco to Seattle isn’t very long. Makes no sense why all the California based places would do this and close their eyes to the possibility of someone going up north as a way to “escape”.

I’m only saying it doesn’t make sense why they’d do it for fixing wages, not that they didn’t do it.

Maybe no charge = very little evidence? Which means what? Microsoft probably not doing this?

Barry March 25, 2014 at 3:12 pm

“The flight from San Francisco to Seattle isn’t very long. ”

Chicago and Detroit are a short hop, or an afternoon’s drive. How integrated do you think that the two labor markets are?

whatsthat March 25, 2014 at 6:21 pm

not sure what your point is, but I have no idea how integrated they are, and I don’t see what that has to do with the demand for skilled engineers.

ralph March 25, 2014 at 7:29 pm

So far as I was commenting, I was merely pointing out that the case seems very geographically centered. I do not know what that might mean, if anything. I was just pointing it out.

Hadur March 25, 2014 at 2:49 pm

Tyrone, is that you?

Michael Foody March 25, 2014 at 2:51 pm

Pretty dumb of rich powerful people running giant firms to do illegal things for no reason at all.

Steve Sailer March 25, 2014 at 8:22 pm

That Steve Jobs … What an idiot Jobs was. Clearly, he didn’t read enough Econ textbooks to understand how business really works.

CMOT March 25, 2014 at 3:03 pm

If Tyler wants to increase his status as a public intellectual he has to break out of the libertarian media ghetto. Defending the Progressive tech oligarchs is contrarian enough to get him noticed while also signaling that given increased status he won’t rock any progressive boats. And there is a market need for a version of Nate Silver more dependable and politically safe to Progressives … if he does enough log rolling for the Ezra Klein project he might just make the cut.

Barry March 25, 2014 at 3:13 pm

“If Tyler wants to increase his status as a public intellectual he has to break out of the libertarian media ghetto. ”

I wouldn’t describe it as a ‘libertarian media ghetto’, but rather as the ‘Koch mouthpiece industry’.

CMOT March 25, 2014 at 3:25 pm

“This One Weird Trick Triples the Amount of Money That Democrats Raise!”

The trick is mentioning the Koch Bros in the fundraising solicitation. It really does triple the amount donated compared to naming any other Progressive boogeymen. That’s really true. So I know why the big Progs talk about the Kochs – its how they get paid. For your sake, Barry, I hope you’re one of the ones getting paid for the daily 2 minute Koch hate, and not one of the chumps who pays ….

Jay March 25, 2014 at 5:28 pm

Soros pays 1 penny for every Koch reference in the comments section.

Ryan March 25, 2014 at 3:41 pm

Evan Starr, a job candidate out of Michigan this year did his job market paper on essentially this.

Bill March 25, 2014 at 4:02 pm

You might want to consider one of the more unique aspects of California law, and draw that into the discussion as well.

Ordinarily, companies rely on trade secret AND covenant not to compete clauses in their employment contracts. However, California is one of those states which does not generally permit covenant not to compete clauses in employment agreements, whereas other states have much tighter common law and statutory law.

This may account for the corporate self help But, the weak covenant not to compete laws may also explain the dynamism of the California tech environment: an employer can’t keep an employee from going to a competitor or starting his/her own business.

MikeDC March 25, 2014 at 4:25 pm

Isn’t the predominant story these days with tech startups either
1. small company strikes it big and turns into big company (e.g. Facebook, Google)
or
2. small company gets bought out by big company (e.g. Facbook, Google) and its product disappears into the Borg collective.

sp6r=underrated March 25, 2014 at 4:54 pm

I am not at all surprised that when capitalists engage in flagrant wrongdoing Cowen will rise to their defense to engage in damage control.

KPres March 25, 2014 at 5:10 pm

How is it wrongdoing when we let unions do it with government backing. Either it’s OK for people to conspire to manipulate wage rates or it’s not.

Jay March 25, 2014 at 5:26 pm

But one group is the descendents of a incestuous relationship (Moabites) and the other group are the Jews – I will let you guess which is which. Left-wing Liberals rationalize their hypocrisy with Biblical logic.

Matt2 March 26, 2014 at 7:56 am

What’s the difference between a union and a corporation when they are engaged in negotiation with each other? Isn’t the Union a collection of Labor owners banded together to increase their power and a Corporation a collection of Capital owners banded together to increase their power? I’d be fine with banning unions as long as Capital couldn’t organize itself above the level of sole proprietorship.

sp6r=underrated March 26, 2014 at 2:42 pm

There is unequal bargaining power between capital and labor. Unions serve to correct the imbalance. That is why they are acceptable. Also lol at Jay.

SR March 25, 2014 at 5:04 pm

I’d caution against calling it collusion but for different reasons. Tech giants have a monopsony because they have complete control over one of the factors of production essential to the tech industry– data. (Same thing with the NCAA and Freshman)

In other words, if you’re in the tech industry and want to do cool projects on cool data, you’re quite limited in which companies you want to work for. They have data, therefore, they can suppress wages.

Turkey Vulture March 25, 2014 at 5:30 pm

I tried to rob a bank at gunpoint, but vaults and my ineptitude prevented me from taking any money. I think we should proceed with caution before convicting me of a crime, because really, can we tell for sure whether any harm was dome?

ralph March 25, 2014 at 7:32 pm

perhaps your ineptitude resulted in better security procedures, ultimately providing a far better value to the customers of the bank as a whole as well as to the shareholders. Who can say? Let’s talk about ethnic food!

spad March 25, 2014 at 5:41 pm

Most of the comments herein are both critical in the wrong ways and not critical in the right ways.

“Let’s say you knew . . . ” = If. A reasonable thought experiment, worthy of consideration and not worthy of a barrage of ad hominems.

However, TC does not assign a % to the importance of this mitigator in reality, and perhaps merely raising the issue without more insight/commentary encourages people to wrongly assign too high a value and/or fail to differentiate between the impact of this mitigator on workers of different levels.

Pizaor March 25, 2014 at 6:14 pm

Yeah…. This is bad.

In addition to everything else the others have said, there is something else. Workers don’t compete with other workers in a generic and ill defined way. They compete with workers that do precisely or almost excatly the same job as they do.

Computer science is huge. Almost every job in the field is sufficently complex that it is complicated to transfer from a seemingly similar job.

Take machine intelligence learning. Google hires over 80% of the existing researchers in the field. They have a defacto natural monopoly even without price fixing. Even if those guys are being paid a lot of money in comparsion to other workers, it probably is nowhere near their true salary level with competition. I would guess off the top of my head that each AI machine learning person is worth several million dollars or more per year, instead of the 200k+ they actually get.

I repeat. These skills are not transferable. You can’t suddenly turn from a database programmer or systems admin into an AI machine learning person, it takes years or even decades. It should be obvious that machine learning people don’t compete with system admins or database programers. Superfically it looks like it’s somewhat related but it isn’t true.

Bad Tyler! Bad!

MikeDC March 25, 2014 at 7:24 pm

I think your point on the non-transferability of skills applies within a given sub-discipline as well. Take AI, as you said, If Google has a natural monopoly, Apple poaching away a few key AI engineers from Google will set Google’s project back but still not pull Apple’s project ahead.

A natural monopoly is natural because attempting to compete will make everyone unprofitable until all but one firm are driven out of business. But, if you’re smart, wouldn’t you want to avoid that [eriod of unprofitability.

Steve Sailer March 25, 2014 at 7:11 pm

“For one thing, we don’t know how effective this monopsonistic cartel turned out to be. We do know that wages for successful employees in this sector are high and rising.”

Yes, but the wealth of billionaires, such as 29 year old Mark Zuckerberg, seems to be rising faster.

Steve Sailer March 25, 2014 at 7:12 pm

All this is of course relevant to assessing the validity of tech billionaires’ claims that then _need_ more H-1B visas from Congress.

Anonymous March 26, 2014 at 2:10 pm

They will work cheaper, plus people on visa’s are locked into their job and easy to squeeze for more work for less pay. I had trouble keeping my reports from over-promising because they were several years into their visa and couldn’t quit their job without another sponsor lined up and they were so desperate to be hired on perm. They would promise anything, hoping to pull it off, finally be seen and worthwhile, and get hired. It was heartbreaking.

ralph March 25, 2014 at 7:35 pm

And relevant that while this behavior was going on, the companies were busy amassing the largest instance of corporate assets held in liquid form…. close to ever. So, clearly, they cannot afford to pay any more for the skills that enabled them to get there.

David S. March 25, 2014 at 7:39 pm

The tech firms maintain that there is a persistent shortage of talent. Generally, a persistent shortage of any good indicates that some outside force is keeping the market from clearing, such as a cartel that is fixing the price of the good below the market-clearing level. So a reasonable conjecture might be that the tech firms are creating the shortage that they complain of themselves, by colluding to fix the price of talent below the market-clearing level, and thereby probably doing themselves more harm than good in the long run. Furthermore, the shortage of talent thus created tends to drive up the market-clearing salary to a level even higher than it would otherwise be. This makes the cartel less and less sustainable as the benefits of defection by one or more cartel members (or the entry of outside entities not part of the cartel) become larger and larger.

In the end, if the resort to force is unavailable, cartels are generally unstable and unsustainable in the long run.

Steve Sailer March 25, 2014 at 8:27 pm

“cartels are generally unstable and unsustainable in the long run.”

Apple’s 2006-2011 short run profits were, uh, nontrivial.

Chris S March 26, 2014 at 10:00 am

Apple also had wonderful, innovative, ground-breaking products.

Anonymous March 26, 2014 at 2:08 pm

Apple doesn’t design products. Designers do. Apple doesn’t code. Coders do. Apple was paid handsomely — what about the people who actually did the work? Were they paid market wages befitting their contributions and demand for those sorts of services?

Chris S March 26, 2014 at 10:21 pm

Continuing the argument..

Apple doesn’t set compensation policies, hr staff does.

Apple doesn’t collect profits, shareholders do.

The designers who worked at apple and feel they can make the same magnitude of contribution without the organization that is Apple, are free to form their own companies – even freelance – and try. Corporations are force multipliers.

leftistconservative March 25, 2014 at 8:22 pm

a quote:
” We do know that wages for successful employees in this sector are high and rising.”

You failed to address the issue of whether they would have been even higher. Given who you are and what you are, that is not surprising at all.

Steve Sailer March 25, 2014 at 8:28 pm

Economists like to talk about opportunity costs, except in situations involving the opportunity costs of workers.

Chris S March 26, 2014 at 10:22 pm

How is that opportunity costs? I think the term you are looking for is counter factual.

Benjamin Cole March 25, 2014 at 9:53 pm

You see, market distortions introduced by powerful rent-seeking private-sector players are okay…but when the economically powerless do the same thing through government, that is an outrage! An outrage!

You know, I have a libertarian bent…but in the USA, what passes for “libertarian” is a GOP’er who wants to smoke pot…and dangerously close to sycophantical to the very wealthy…but then, most “libertarian” organizations cannot survive in the free market and so require donations, and that means rich people….

Cliff March 25, 2014 at 10:18 pm

Donations are the free market, smart guy

Engineer March 25, 2014 at 10:04 pm

There is another “conspiracy” going on right now that a lot of engineers know about: a lot of employers loath the manner in which high-paying Chinese telecom giant Huawei poaches their employees, and will refuse to hire an engineer who has worked there.

Donald A. Coffin March 25, 2014 at 10:14 pm

I’m with Kevin Drum on this one: http://www.motherjones.com/kevin-drum/2014/03/incompetent-scheming-just-bad-competent-scheming.

Incompetent crooks need to be deterred, too. And, besides, at this point, all Tyler has provided is an argument that the conspiracy to hold wages down *might have been ineffective.* One thing an investigation might/could/should reveal is *whether* the conspiracy was effective. Ignoring it because under certain conditions it *might* have failed in its objective seems to me to be special pleading on behalf of crooks,

Kyle M March 25, 2014 at 10:34 pm

I think the model needs to take into account the very large start up segment in the tech industry.

1. One big reason that companies like Google acquire companies is to get the people. Start ups provide a mechanism to pay up front for future labor lock in. I’ve definitely heard about this.
2. The ability to exit is much more powerful. I don’t think there’s another sector where the threat of leaving to start your own business is as powerful as tech (traders starting hedge funds is another. Maybe real estate brokers?). This makes all of the monopsonistic problems much less severe. Perhaps they even counteract the efficiency wage problem??
3. Anyway, this creates an odd distribution effect where the very risk loving, talented, insanely hard working get paid a lot (expected value) and drag the wages of people like them up even if they’re not in startups, while in the rest of the market wages are trying to be suppressed.

gcochran March 25, 2014 at 11:13 pm

I What I wonder is whether tech companies are ganging up to limit the payscale for fawning columnists and bloggers. That would be wrong.

Sean March 25, 2014 at 11:48 pm

Poor Tyler here has been reduced to eating at cheap Chinese places in strip malls.

Ed March 26, 2014 at 12:27 am

“We do know that wages for successful employees in this sector are high and rising.”

How does an economist determine that wages are “high,” Mr. Cowen?

josh March 26, 2014 at 8:18 am

” We do know that wages for successful employees in this sector are high and rising.”

Do we know that? Check out this graph from the Atlantic:

http://cdn.theatlantic.com/static/mt/assets/business/EPI_Halzman_Computer_Programmer_Salaries.JPG

WJ March 26, 2014 at 8:38 am

By the early 90s, Microsoft had already minted about 2,000 employee millionaires via stock options. This was before Windows 95, before smartphones, before most people had internet. It had also made billionaires of at least three early employees besides Gates and Allen.

The tech sector is far larger and more competitive today. But, since this collusion began, and since the rise of the H-1B visa, how many employee millionaires has Google created? Or Facebook? We don’t hear nearly as much talk of the employee millionaire as we did 20 years ago. Is that because it’s so common, or so rare?

Chris S March 26, 2014 at 10:02 am

According to this 2007 article, by that time Google had created about 1,000 millionaires.
http://techcrunch.com/2007/11/12/counting-the-google-millionaires/

XVO March 26, 2014 at 8:42 am

“rather you simply observe that other people in your general position seem to stay put rather than receiving fantastic outside offers”

Because we all have been observing the inside of these companies for years and know all of the employees personally as well as their job prospects before we take a job with a company.

Chris S March 26, 2014 at 10:18 am

You might not, but everyone who works there has.

Barry March 26, 2014 at 10:29 am

Chris S March 26, 2014 at 9:57 am
Chris:
” I heard that the summer interns at Facebook got Teslas. Yes, $90,000 electric cars.

Is that rapidly rising compensation?”

Or a company with billions of $ of cash, and no productive use for it.

Chris S March 26, 2014 at 10:23 pm

Yes, that is very possible. I believe the fact that the Googles et al have billions (hundreds of billions??) sitting around earning zero means they have no good ideas.

Anonymous March 26, 2014 at 1:55 pm

I’m surprised how few people knew about this, but I guess unless you have a job there, it doesn’t affect you.

Of course there were still ways to change jobs. The worst deals were signing agreements not to work for a competitor for 6 months, a year, or more. But that was in writing, and not confined to silicon valley or even tech. I know people asked to sign them in biotech, for example.

But you would have to plan job changes much more carefully, sneak about more, and take more risks. For example, you would probably have to get an oral hiring agreement, then quit your job, then hope you get the same hiring agreement on paper. You wouldn’t get *any* cold calls for jobs, which hurts the outstanding talents — those are exactly the people these companies were colluding to keep. If you were one of those outstanding people and you happened to quit your job, suddenly offers and nibbles and interviews would come at you within *days*.

Tom March 26, 2014 at 8:02 pm

I recall reading of a similar situation in Sweden a few years ago, again with multiple companies colluding to keep engineer salaries down. Since two points make a trend line, it’s time to ask questions. In particular, is it because engineers are uniquely foolish and incapable of valuing their work, or is it because engineers have uniquely variable human capital (which perhaps have difficult valuations)?

Professional athletes and investment bankers appear to be able to transcend these sorts of practices.

Chris S March 26, 2014 at 10:25 pm

Despite the snark, I know lots of engineers and many (most?) are not that good at understanding the value to the firm of their contribution, or capturing a larger share of it. Those that do realize it, move to sales or management.

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