Several of the big tech firms in the Valley are headed to a trial over their collusion to limit wages by agreeing not to hire each others' engineers. The allegation is that
A federal judge Friday denied efforts by Apple, Google, Adobe and Inte to avoid trial on claims that they suppressed wages by agreeing not to hire one another’s employees.
The ruling by U.S. District Judge Lucy Koh in San Jose, Calif., clears the way for a trial scheduled to begin May 27 that could affect 64,000 people who worked at the four Silicon Valley companies between 2005 and 2009.
But why should we really care about the wages of a group already among one of the highest professions in the land? Because this is exactly what Karl Marx warned us against, employers ganging up to make sure that the wages of the employees didn't rise. I've a piece over at Pando Daily on this but to put the argument into more businesslike terms appropriate to Forbes.
A basic point about how wages rise is that people aren't paid what they're "worth". Nor does anyone, except by chance, get paid their marginal productivity nor is there any formula to calculate what the correct wages should be. People get paid enough to get them to do the job and that's it. And the wages that must be paid to get someone to do job A will be determined by what other people are offering the same person to go and do job B or job C. That is, the wages we get for a job are determined by the wages we could get in some other job.
This is, for example, why the workers in some Third World factory might be just as productive as workers in a US factory but get paid a lot less. Not because of anything other than the fact that if they leave that productive factory then they will be offered low wages in other jobs in that generally low productivity economy. It's also the reason why a hairdresser, doing exactly the same job in Boston or Bombay gets paid so much more to do it in Boston. Because in Boston her alternatives to being a hairdresser also pay much more than they do in Bombay.
So, it is competition for labour that pushes labour rates up: this is the same things as what I've said above, that it is what you might get paid in alternative employment that determines what you're going to get paid in this one.
At which point it should be obvious why we don't like employers colluding to keep wages down. Because it destroys that free market method by which wages generally rise over time. This is what is called monopsony, or as Karl Marx called it, monopoly capitalism. And yes, it is just as bad as Marx thought monopoly capitalism would be and that's why I, for one, am entirely happy that the judge is allowing this case to go forward.
There's also a wider effect upon the whole economy. For if wages are deliberately kept down in one part of the economy then the ripple effect of them rising in that part won't be felt across the rest of the economy. If the Valley is willing to offer higher wages to engineers in the absence of collusion then other industries that employ engineers will have to raise their wages too. And this will encourage more people with the requisite skills to move from non-engineering to engineering, pushes up wages (infinitesimally, sure, but it will be happening) right across the economy. Yes, I agree, it only happening to 60,000 odd engineers in California isn't going to affect the wages of a fruit picker in Georgia but n theory there will indeed have been an effect, however small.
