The Market for Smart People
An insightful article in last week’s Economist considers an issue that is becoming increasingly central in U.S. economic policy dialogue—the health of the labor market for technically skilled, innovation-generating employees. In a globalizing and innovating economy, technical talent commands big bucks in the private sector. The article notes that eBay pays its lead technologist twice as much as its CEO. Apple gave a high performer the tidy sum of $8 million to prevent him from leaving. It would seem that technical people are today's investment bankers.
But there is also a public benefit to having a well-functioning market for high-quality creative labor. The knowledge economy is blessed with something that economists generally refer to as “spillovers.” New ideas and inventions most certainly benefit the employers of the workers who develop them. But they are never locked up. They often have tangible impacts well beyond the industry in which they originate.
Unfortunately, public and private interests often appear to be at odds with each other. In an effort to protect their competitive positions, companies are increasingly resorting to litigation and other legal avenues to prevent employees from moving to rivals. For example, non-compete agreements, which prohibit departing workers from joining a competitor for a fixed period, are becoming widespread. According to the article, a remarkable 90 percent of management and technical personnel in the U.S. have signed them. Further, it would seem that companies can assert wide-ranging rights over employees’ inventions to the point of misleadingly claiming ownership of ideas that are more appropriately credited to the worker.
As the article explains, the legal system has tended to emphasize the free-rider problem in responding to such challenges. Judges ask: Don’t employers have little incentive to invest in training and innovation if the benefits can easily walk out the door to a rival company? While this is an intuitively strong argument, the evidence seems to weaken it. Generally speaking, the free flow of talent encourages innovation because it extends the universe of networking and cross-fertilization, much to the benefit of all companies. An academic cited in the article argues that firms that do business in markets where the high skilled have greater freedom of mobility tend to have higher quality human capital.
None of this suggests that companies should not have reasonable intellectual property protections. And careful research must continue to establish a statistically valid relationship between the free flow of technical talent and innovation itself. But as innovation-generating labor becomes increasingly important to U.S. economic growth and competitiveness, this debate is one that we must have.