March 25, 2014

"The Silicon Valley wage suppression conspiracy"

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.


Big Bill said...

And the nice thing is that by refusing to bid up the wages for Silicon Valley engineers they suppress the Silicon Valley wage structure ... which then becomes the "prevailing wage" for all the Indians (dot not feather) they hire under H1B visas ... as they simultaneously tell Congress "we just can't get good American help".

If I were Holder I would have settled this deal differently.

Instead of seeing it as a good way to (1) drive down white wages and (2) bring in loyal Indian Democrats to replace white people, I would have told Silicon Valley that they couldn't hire any H1B's for the next five (5) years until white wages got jacked back up to where they would have been without white wage suppression.

Anonymous said...

OT, Interesting study showing that parental involvement has very little influence in education achievement. Makes sense, either your parents give you good IQ genes or bad ones. There involvement is quite irrelevant. Reminds me of certain immigrants who can't speak a lick of english but, there children are at the top of the class.

Critics are going through contortions trying to make the point that a parent may be so many years out of school and may not know how to correctly solve algebra problems or conjugate verbs. Better leave that to the professional education-industrial complex.

I feel bad for the nurtures', studies keep smacking them in the face and they still don't get it.

Tom-in-VA said...

Somebody ought to tell DeBeers their entire business model is completely fucked.

wiseguy said...

Who's the worst: Microsoft, Google or Apple? Gates, Page, or Jobs?

Both questions are debatable and neither really have any wrong answers.

mj said...

Use to be a loyal MR reader. Now I only read MR for Steve's comments.

You are doing God's work, Steve.

Anonymous said...

Err, I'm not sure what you're getting at with the comparison to the NFL, whose owners openly and legally collude to fix the price of labor, and actually told Richard Sherman what team he had to play for by virtue of the draft.

What Cowen is saying is that salaries at tech companies have been steadily rising and there's a lot of movement between companies, which would tend to show that cartels don't work very well no matter how clever the people running them might be. And they're even less effective when the conspirators have to communicate in coded messages and have ambitious US attorneys and state attorney generals breathing down their necks.

Annon2 said...

I followed the link to the post & read all of Steve's comments. Best use of my time today.

In the next iSteve panhandling drive, you've got to highlight not just the great writing here, but this kind of stuff as well.

Anonymous said...

Just think, Meg Whitman even richer. She might have had enough money to not end up as the gooey red stuff on the bottom of Jerry Brown's shoe. Steve Poizner might have been richer too. He and Meg could have said even more bad stuff about each other as each sought to be said gooey red stuff.

Anonymous said...

THERE involvement is quite irrelevant. Reminds me of certain immigrants who can't speak a lick of english but, there children are at the top of the class.

Looks like you weren't up THERE at the top of the spelling/grammar/punctuation class either

Anonymous said...

If you want another real world example of how cartels are difficult to sustain, you can look to the problems NHL owners had with "cap circumvention". The short version of the story is that the NHL thought they had a system in place to control the annual salaries of its players, where a player's cap hit was the annual average salary paid to the player over the life of the deal. A few years after the CBA was signed, a clever GM figured out that you could have heavily front loaded long term deals that would pay a player an enormous salariy during their prime playing years, with basically the league minimum in later years when the player was at retirement age anyway, and the cap hit would be off the books. It got so bad to the point that the NJ Devils gave their star player a 17 year, $105 million deal that would have paid him 95 million of it in the first 10 or 11 years (I forget the exact numbers). So it took what really should have been a 9 or 10 million dollar cap hit down to $6 million. Those sorts of deals were only brought to heal when an arbitrator ruled that it violated the spirit of the CBA.

So there you have an open price fixing scheme that was spelled out in a legal document, yet the participants still tried to cheat. The Silicon Valley conspirators didn't have the benefit of any of that, so it's even less likely that it was successful at it's supposed aims.

Anonymous said...

"If you want another real world example of how cartels are difficult to sustain..."

Cartels are more effective if they're secret.

I wonder if the NSA use it to blackmail the tech companies?

Anonymous said...

"Cartels are more effective if they're secret."

No, they're most effective when they're legal and open, and if you get rid of all of the loop holes in the relevant agreements. My point about the NHL is the tendency to try and cheat even when there are written rules and fixing prices is legal.

reiner Tor said...

THERE involvement is quite irrelevant. Reminds me of certain immigrants who can't speak a lick of english but, there children are at the top of the class.

Looks like you weren't up THERE at the top of the spelling/grammar/punctuation class either

English is not my first language, but I used to laugh at them stupid Americans regularly making such stupid spelling mistakes, there vs. their, your vs. you're, etc... until I once noticed I made one myself.

Apparently what's going on is that I think of the pronunciation of the English word (I don't know if that works that way for native English speakers), and with words that sound the same or very similar, my brain might pick the wrong version. I don't really have this problem in my native Hungarian, because in Hungarian spelling tends to follow pronunciation way more closely (actually, I know this for sure of German and Vietnamese and Russian as well, and I think most languages are much better than English, which is a mishmash of old Germanic, Latin and French spelling rules), so homophones tend to be homographs as well, which means no problem in such cases. With full homonyms you need not worry, but with homophones with different spelling you have to think.

I don't really care about that, because in comments you can't expect people to pay attention to what they write. If I understand something, then I'll judge the comment based solely on the merits of its content, not the spelling.

Anonymous said...

"My point about the NHL is the tendency to try and cheat even when there are written rules and fixing prices is legal."

Sure, open cartels make people want to break them whereas if they're secret...

Anonymous said...

Doesn't really matter whether it worked or not, the point is these neo-oligarchs wanted to do it.

This kind of shit from Tyler Cheap Chalupas Cohen is just "in the long run we're all dead" hand waving, the kind of thing you can afford do when you have tenure at a taxpayer funded university.

josh said...

" 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:

Anonymous said...

Documents from the court case, I am quite surprised that high level executives were colluding as explicitly as they were.

I would have had at least a loyal underling employee communicate about these types of topics with other companies to claim it as plausible deniability and keep my butt out of trouble.

Steve, Eric, and Brin were either dumb and unaware that these types of deals were illegal, did not care and/or immune as tech titans, or had some really big balls to leave such a huge paper trail of emails.

ATBOTL said...

Tyler Cowen: Court economist.

Anonymous said...


You are only telling half of the sordid story. Silcon Valley and the rest of America's tech employer's don't just lust after CHEAP LABOR, they demand FREE LABOR.

How does a tech mega billionaire acquire FREE LABOR? Well mostly by requiring large amounts of uncompensated overtime as a condition of employment. The usual way of doing this is implementing a variation of former GE CEO Jack Welch's Vitality Curve otherwise known as RANK and YANK.

Rank and Yank has become standard across much of corporate American, not just the tech industry since the mid-nineties. It is the rule for STEM workers in the finance industry as well. Rank and Yank is not really about maintaining a quality workforce. It is about extracting uncompensated overtime, ageism and insuring that there be a large pool of over 35 year old men desperate to continue their careers and support their families by pounding on the back doors of corporations for short term contract work at low wages and with no benefits.

Rank and Yank typically works this way; For the first 3 years out of college or so you are except. Then every 6 months to a year, you and your boss collectively rank yourself and your coworkers. Remember H1-B and other foreign indentured workers are except. They have their own ordeal to contend with.

The "Top" 20 percent earn an exception from Rank and Yank for a year or two. Yes it is very similar to the immunity system from the Survivor genre of reality TV. Besides the truly worthy, this is also convenient for protecting the TWMNBN, the legacies and other aristocracy, and a token number of women and minorities to keep the NYT and Dept of Justice happy.

The next 50 percent are required to be subject to the same process year after year. The bottom 30 percent are on "secret "probation. Trust me it is never a secret since you will be singled out for special motivation from your boss and the overclass. Two years in a row on probation and you are subject to a culling. Anywhere from 8% to 10% are fired this way annually. No wonder they are always claiming to be short of workers.

Since the annually culled are typically over the age of 35, the question is when after 10 years or more did incompetency and
laziness finally get the better of them?

Truth is after 10 years or more of this depravity the typical worker becomes simply hopelessly burned out, anxious, depressed or just cynical. Personally I felt a deep sense of shame and remorse that I cooperated with this disgusting practice as a condition of employment. Thankfully management believes it is better to push you out the door before your attitude is catching.

Yes I anticipate some Ayn Rand worshiping compulsive masturbating
punk still in his twenties and subject to acne to tell me this Rank and Yank system sounds awesome and is exactly what they will implement when they become a master of the universe. Also that I am a disgruntled marginally employed loser.

In my defense I will say I survived Rank and Yank until my early forties. Lets see how you fair.

One last thing, tech analysist Tom DeMarco in his books Peopleware and many others says that there is little indication that lengthy periods of uncompensated overtime results in greater long term productivity and much that it is disastrous. There is only so much quality concentrated abstract thinking a given STEM worker is capable of year in and out.

Rank and Yank in other words as a means of showing the whip hand is both cruel and futile.

Putting STEM workers out of a job in their prime simply insures future shortages of STEM workers in the next generation. Idiocracy is our future.

Anonymous said...

I mistake homophonic (?) words all the time - they're/their/there, no/know/now, etc. If a person's comment is otherwise intelligent, and the spelling and grammar are generally correct, then a person would have to be kind of an assault to dwell in little mistakes.

Anonymous said...

Meg Whitman's involvement is intersting, as she was a big booster of Mitt Romney. While Barack Obama hasn't exactly distinguished himself since the election, neither have many of Romney's cronies. Ryan revealed himself to be an open borders nutjob, and Mike Leavitt (former Utah governor and Romney's would-be chief-of-staff, just led an effort to help the rich gain more control of Utah's nominating system - an effort endorsed by Romney. So it's quite clear that Romney wouldn't have been much better than Obama, if he would have been better at all.

refried beans and tequila said...

i'm suprised that tyler "cheap chalupas and beans" cowen didn't notice that many of these employees quit the big firms to roll the dice on the startup lottery. that would seem to butress his point. are the vulture capitalists in on the scam too?

but i'm not a tenured professor of economics at a d-list institution of higher learning so what do i know? said...
This comment has been removed by the author. said...

Steve seems to have fallen for the very silly article by Mark Ames about "wage suppression".

Pro tip: when you see "Mark Ames" in the byline, assume that what follows is a lot of hyperventilating bullshit. said...

Also it goes without saying that iSteve readers are even more gullible. Read this and become enlightened.

Old Odd Jobs said...

Steve has the real scoop on these companies, not these pointy-headed economists! He doesn't need pesky data to prove his points either, just smug paranoia.

Anonymous said...

"Steve has the real scoop on these companies, not these pointy-headed economists!"

Take Steve out of the picture. Several of the richest men and women in the world - Ballmer, Schmidt, Whitman, Jobs, Lucas, etc. - got together and decided to stop bidding up employee salaries, and some college professor is telling them "That's not how you get rich!"

If you had a chance to sit at the knee of either Tyler Cowen or a resurrected Steve Jobs and have them teach you, no holds barred, what it takes to become rich, at whose knee would you sit?

David said...

>He doesn't need pesky data to prove his points either, just smug paranoia.<

Project much, Miley?