Although Jobs worshipped Noyce, he failed to give his own Apple employees the same freedoms that allowed Noyceās best innovations to flourish. In 2014, it came to light that Jobs had been preventing employees from moving to other companies. Silicon Valley was founded on freedom of mobility for workers, but the tech giants ā Apple, Facebook, Google, Adobe and many others ā were caught in āgentlemenās agreementsā to not poach each otherās employees. Staff brought the case forward claiming that these pacts made it difficult to market their skills and that they also suppressed their salaries.
As part of the lawsuit, emails came out in court between Steve Jobs and Eric Schmidt, the CEO of Google, āI am told that Googleās new cell phone software group is relentlessly recruiting in our iPod group. If this is indeed true, can you put a stop to it? Thanks, Steve.ā In another email, Larry Page from Google sent a distressed message saying Steve Jobs had threatened war if a single one of his staff were hired.
In the end, the agreement not to poach went out across Silicon Valley. Google, Adobe and others developed Do Not Hire lists. This was clear collusion, and the tech firms were forced to pay a $324.5 million fine for their illegal non- compete pact.
The non-compete problem did not end there. These contractual arrangements are now spreading like an epidemic across the entire economy and hurting the poorest the most. Today non-competes cover almost 18% of the entire American workforce and nearly 40% have signed one in previous jobs. Only California and three other states (Montana, North Dakota and Oklahoma) ban non-compete agreements in the US.
Lawyers sometimes argue that these clauses help protect trade secrets, but is there any good reason to ask camp counselors, janitors, and personal care workers to sign them? There are already federal laws dedicated to protecting Intellectual Property and today even those who clearly do not possess trade secrets are made to sign them, including 15% of workers without a four-year college degree and 14% of people earning less than $40,000.
These employment clauses are found in a staggering percentage of Americaās largest fast-food chains with minimum wage employees. Chains like Burger King, Carlās Jr., Pizza Hut and, until recently pressured in 2017 to drop them ā McDonaldās. These no-hire rules affect more than 70,000 restaurants ā more than a quarter of the fast-food outlets in the US ā according to Alan B. Krueger, who is an economist at Princeton University.
If youāre wondering what Pizza Hut has to lose if one of their store workers decides to work for another Pizza Hut across town, the answer is simple: the fewer options workers have, the less freedom they have to find a company that might pay a higher wage. The only function of these rules is to limit worker mobility and diminish their ability to bargain for wage increases. This is modern day feudalism, and workers have become vassals to corporate lords.
The truth is that non-competes only help firms that want tight control over employees. They do little for a given industry at large or for the economy. They harm workers and are disastrous for workersā wages.
Often employees do not realise they are signing away their right to work somewhere else, as firms are not legally obligated to disclose non-compete clauses in almost all states. According to a study by economists Matt Marx at MIT and Lee Fleming at Harvard University, barely 3 in 10 workers were told about them in their job offer, and in 70% of cases, they were asked to sign them after they had already accepted the offer and turned down any alternatives. Half of the time, non-compete agreements were presented to employees on or after their first day of work.
Barring workers from moving in search of better opportunities only works in an environment where firms have all the power. Because of industrial concentration, a number of firms now have monopsony power ā that is, they are the only buyers of labour. A monopoly means there is one seller, and a monopsony means there is only one buyer.
In a monopsony, workers have little choice in where they work and have little negotiating power for wages with employers. In a healthy economy, many firms would be competing equally for workers and would be incentivized to entice new hires with higher wages, better benefit packages, and few restrictions on their next career moves. But monopsonies make it easier for firms to depress worker wages. The classic example of this is a coal-mining town, where the coal plant is the only employer and only purchaser of labour. Today, in many smaller towns, Walmart is the new coal plant ā and is the only retail company hiring.
With burdensome occupational licensing, forced arbitration, and increased industrial concentration thrown into the mix, American workers are now faced with pressure on all sides. Without a strong union movement to provide a countervailing power, American workers are left to fight alone.
This is a toxic cocktail. The hangover from increased corporate power is real, with many struggling to meet basic needs. This is not the free capitalism we need or the hope that drove the ātraitorous eightā in Silicon Valley decades ago. Workers deserve better.
This is the second of three extracts from āThe Myth of Capitalism: Monopolies and the Death of CompetitionāĀ a new book co-authored by Jonathan Tepper and Denise Hearn.
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