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The Invisible Hand Slaps Millennials in The Face

Gutin & Wolverton Sept. 5, 2019

Google and other cool technology companies have set the employee-keep-happy standards in Silicon Valley. Games, yoga, personal time. These fit into the companies’ shareholder obligations, which despite the do-gooder pretense, always come back to profit.

That’s what the invisible hand is all about, right? It’s actually in the company’s best interest to treat employees well because then the company attracts good employees and keeps them happy, which increases worker productivity, in turn increasing profitability and sales, and then more sales follow because the company can market its good reputation.

But there are a few things that distinguish employees of cool tech companies from, say, those of an auto manufacturer. It’s the skills of the workers and their choices in employment. Actually, if you want to make a complete list, you can look at the factors that create employer monopsony power:

  • There is only one main employer in a particular region / industry. Workers have no choice who to work for.

  • Workers lack information about other jobs.

  • Significant costs and difficulties in workers moving between companies. E.g. firms may distrust workers who frequently move looking for a higher wage; geographical immobilities in moving.

  • The wage rate is only one factor out of many that motivate workers. A worker may stay in a job where he feels a certain degree of certainty rather than move to another company with a higher wage.

  • High rates of unemployment give firms greater choice in choosing workers.