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Monopsony power or when the employer(s) dominates the labor market


Photo by Jonas Jacobsson on Unsplash

One in five workers with a high school education or less are subject to a non-compete clause. Labor cost becomes one of the variables any company will try to contain, especially for large companies or small franchises (like soccer, basketball teams) where the star status is coming with large paychecks.

I will try to touch this subject in the light of a few observations and findings of today's labor market.

Large companies are been tacitly agreeing to limit poaching talent from each other in order to limit the salaries of the talented people

Monopsony is the buyer's power in the market, single buyer or many of them agreeing to follow the same rules. I wanted to touch the subject because it reflects one of the old ideas where "managers" are trying to contain costs of their raising stars. That is valid for all industries with the exception of the movie, music industry or individual sports. All other cases - team sports (basketball, hockey, soccer, etc...) are having in place a level agreed to pay all their team members.

In the case of FANG companies, what would be the scenario where they will compete for star performers? The salary will go up and up with no limit in sight. The real gain for the company is totally diminished if the cost/salary goes over a certain threshold. And there is another reality, one person cannot make or break a company with the most famous example being Steve Jobs. If you start to read the real stories behind the big break outs (like launching of the first Ipod or IBM meets DOS) you will realize that Bill Gates just pioneered the way of capturing a market and finding an already developed product to buy it and riding the wave.

All companies are trying to curtail the churning of their workforce with contracts limiting the possibilities of moving to competition or even remote competition

Another debilitating clause for people moving in the job market is the non-compete clause which forces the employee out of the niche job he was working (maybe) for many, many years. The company is keeping the employee under a certain salary and also is imposing restrictions for the potential jobs exactly where the employee might have a better chance to penetrate and advance. It is a myopic protection especially in the light of the arguments that a person (unless is purely stealing IP) can break a company.

Another famous example of abusing the "no-compete" clause was deftly unfolded in the case of Sergey Aleynikov, the Goldman Sachs programmer who tried to defect to one of of the fast-trading companies. His case was abundantly described in the "Flash boys" book, of Michel Lewis.







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