Monday 11 October 2010

High tech labour markets

One of the problem with developing a theory of the firm for firms based on human capital is that human capital can not be owned by the firm. Employees can always walkout the door in a way that non-human capital can not. This means that human capital firms can be very unstable with workers leaving anytime they want. Hart (1995: 56-7) goes so far as to argue that, at least some, nonhuman assets are essential to a theory of the firm. To see why this may be so consider a situation where 'firm' 1 acquires 'firm' 2, which consists entirely of human-capital. The question Hart raises is, What is to stop firm 2's workers from quitting? Without any physical assets - e.g. buildings - firms 2's workers would not even have to relocate themselves physically. If these workers were linked by telephones or computers, which they themselves own, they could simply announce one day that they had decided to become a new firm. For the acquisition of firm 2 by firm 1 to make economic sense there has to be a source of value in firm 2 over and above the human-capital of the workers. It makes little sense to buy a 'firm' if that 'firm' can just get up and walk away. Hart argues there must be some 'glue' (non-human assets) holding firm 2's workers in place.

So if firms can not own their human capital how do they overcome such a problem. What is the gue? It looks like companies in Silicon Valley tied to deal with the issue by agreeing not to hire people of each others companies.
Six leading technology companies, including Apple, Google and Intel, reached an antitrust settlement on Friday with the Justice Department that promises to increase the competition for sought-after technology workers. The government had conducted a yearlong investigation into agreements among companies not to poach employees from each other.

The investigation focused on five agreements by the companies not to make cold calls to employees that each company had placed on a do-not-call list. Each of the pacts, according to the Justice Department filing, involved a pair of companies: Apple and Google, Apple and Adobe, Apple and Pixar, Google and Intel, and Google and Intuit.
Anti-competitive or just an rational response to not being able to own some of your most valuable assets?
  • Hart, Oliver D. (1995). Firms, Contracts, and Financial Structure, Oxford: Oxford University Press.

2 comments:

Horace the Grump said...

Presumably the most effective sort of 'glue' is ownership stakes in the firm... consider legal partnerships or old style investment banks - keeping the human capital was about giving them a slice of the action...

In a takeover Firm 1 would have to offer a slice of equity to Firm 2's employees to get them to stay - the old 'golden handcuffs'...

But in public companies offering shares to lock in employees is more difficult - hence the development of the 'no poach' market structure...

Samuel Konkin said...

Restraint of trade clauses would not one mechanism. People could walk away, but to what?