The Silicon Valley wage suppression conspiracy
by Tyler Cowen
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.
Tyler is an economics professor, and I took Econ 323 in 1979 in which I learned that the cutting edge among economists was that collusion and cartel behavior aren't really much of a problem in the modern economy. So, we know that.
Too bad Steve Jobs was just a college dropout and didn't have a chance to learn that too. If poor Steve had read enough contemporary econ textbooks, he'd have known that he, Eric Schmidt, Michael Dell (another college dropout, let me note), Meg Whitman and so forth were just wasting their time by conspiring against their employees. Think how much richer they'd be if they only understood modern econ thought.
Another thing is you've got to feel for the techlords because of how disruptive it is to their big projects when their frenemies lure away key employees by offering them more money. It's like how Richard Sherman changed teams on the morning of this year's Super Bowl for a doubling of his weekly wages, leaving Seattle without a good cornerback, so Peyton Manning threw for 500 yards.
Oh, wait, NFL teams negotiate contracts with their key employees so that doesn't actually happen. Some observers think tech firms could try that too, but those people are communists.
... 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.
If you want to limit inequality, you got to divert that extra $500 per week from the pockets of overpaid software engineers and into the pockets of Brin, Page, and Schmidt.