Archive for the ‘Employment Law’ Category
posted by Orly Lobel
What a rollercoaster week of incredibly thoughtful reviews of Talent Wants to Be Free! I am deeply grateful to all the participants of the symposium. In The Age of Mass Mobility: Freedom and Insecurity, Anupam Chander, continuing Frank Pasquale’s and Matt Bodie’s questions about worker freedom and market power, asks whether Talent Wants to Be Free overly celebrates individualism, perhaps at the expense of a shared commitment to collective production, innovation, and equality. Deven Desai in What Sort of Innovation? asks about the kinds of investments and knowledge that are likely to be encouraged through private markets versus. And in Free Labor, Free Organizations,Competition and a Sports Analogy Shubha Ghosh reminds us that to create true freedom in markets we need to look closely at competition policy and antitrust law. These question about freedom/controls; individualism/collectivity; private/public are coming from left and right. And rightly so. These are fundamental tensions in the greater project of human progress and Talent Wants to Be Free strives to shows how certain dualities are pervasive and unresolvable. As Brett suggested, that’s where we need to be in the real world. From an innovation perspective, I describe in the book how “each of us holds competing ideas about the essence of innovation and conflicting views about the drive behind artistic and inventive work. The classic (no doubt romantic) image of invention is that of exogenous shocks, radical breakthroughs, and sweeping discoveries that revolutionize all that was before. The lone inventor is understood to be driven by a thirst for knowledge and a unique capacity to find what no one has seen before. But the solitude in the romantic image of the lone inventor or artist also leads to an image of the insignificance of place, environment, and ties…”. Chapter 6 ends with the following visual:
Dualities of Innovation:
Individual / Collaborative
Passion / Profit
And yet, the book takes on the contrarian title Talent Wants to Be Free! We are at a moment in history in which the pendulum has shifted too far. We have too much, not too little, controls over information, mobility and knowledge. We uncover this imbalance through the combination of a broad range of methodologies: historical, empirical, experimental, comparitive, theoretical, and normative. These are exciting times for innovation research and as I hope to convince the readers of Talent, insights from all disciplines are contributing to these debates.
November 16, 2013 at 12:56 pm Posted in: Antitrust, Articles and Books, Behavioral Law and Economics, Book Reviews, Bright Ideas, Economic Analysis of Law, Empirical Analysis of Law, Employment Law, Innovation, Intellectual Property, Law and Psychology, Symposium (Talent Wants to be Free), Technology Print This Post No Comments
posted by Shubha Ghosh
I have enjoyed the discussion on Orly’s book and thought of an interesting analogy to sports that is worth sharing. The inspiration was Haddock, Jacobi, & Sag, “League Structure & Stadium Rent Seeking–The Role of Antitrust Revisited,” 65 Florida Law Review 1 (2013), an offprint of which appeared in my box the other day. I recommend the article for those interested in regional economic development, sports franchising, antitrust and composing a title for an academic article without using a colon. The ideas below are inspired by the article but represent my own views, not those of the authors.
Free agency in sports is desirable along the lines of Orly’s argument. Talented players are not locked into a particular team and can auction their skills off to the highest bidder. I think the case is strong for free agency as benefitting individuals and society. One can complain about rent seeking and about the dynamics that lead to improper behavior like doping. As far as rent seeking, it is a loaded term like piracy or pornography, acting more as a conclusive label rather than an analytical concept. Orly’s argument supports rent seeking when it benefits talent and helps to unlock it. As far as the dark side of competition (doping or cheating), those can be handled through other means than limiting free agency.
Does the free agency argument translate over into the firm or organizational level? As Haddock, Jacobi, & Sag point out, there is lots of wasteful behavior as sports teams threaten to move in order to get better franchise deals from cities. I understand their argument to be that the industrial structure of sports franchises in the United States leads to such opportunistic behavior as strapped and often desperate cities cannot effectively respond to the threat of exit by a team. They contrast the US sports team structure with that in the UK, where teams rely more on fan support rather than public subsidies. Consequently, municipalities often have several sports teams that compete among themselves.
I found this example fascinating for the purposes of this symposium. First of all, the free agency point maps readily onto Orly’s point. Competition among players is perhaps more effective and arguably more fair than competition among teams where players are locked into the firm and its mechanisms (if any) for internal competition. At the same time, arguments for free competition do not readily transfer over to the franchising level given the industrial organization of teams and their relationship with cities. The answer to the problems Haddock et al. identify for sports franchising in the US lies in altering the political and market structure within which bargaining and competition for franchises occur. The example illustrates the relationship between individual mobility, competition internal to an organization, and the background structure of competition that defines how interactions among and within organizations play out.
posted by Deven Desai
There is a hidden paradox in Talent Wants to be Free: There is time to lock down, and a time to set free (maybe to sow, reap, and more too). Lobel notes that some work indicates that early stage industries may benefit from lock down. But she also makes the observation that a company locking down talent may be in decline. What can we make of this possible paradox?
I think that it shows how difficult it is for any company or industry to truly innovate. As Lobel notes, when things plateau, talent should be loosened up. Why? I suggest that the old hack of the Innovator’s Dilemma is in play. As a company is used to a certain business there are many reasons it won’t move on to the next thing. And it may not be able to see or be willing to work on the next thing. The folks who are into crazy late night work, start-up adrenaline, and the chance to press the edge of whatever field they are in find that the company has become stale. That may also be an industry. I believe that the convergence of businesses is part of why Silicon Valley companies looked to limit talent movement. They both did not want their core people help competitors build rival services and found that folks may be tempted to move to a seemingly new place. For example, a social network person may have jumped to Google to build Google + if their old firm was stable or a search technologist to Amazon or FaceBook, and so on. The respective verticals may be stale and converging. So the leaders start to find ways to keep labor in place (and probably sneak folks to their outfits as much as they can nonetheless). Is there another option? Sure.
Start a Bell Labs, Skunk Works, or Google X. In the short term at least, some of the best folks may stay and set up the next stage of your company. But as the scenario planning and related literature show, sooner or later the company will fail to turn that work into something. When that happens, some of the talent may be frustrated and leave. Again, the need for the payoff, the we planned for X and delivered X vortex takes hold and down the drain we spin. The upside is that other companies will lurk at the edge of the collapse and pick out the best of the wreckage. The key as Lobel argues is that the human capital be able to picked up. If not, the stalling, collapsing company keeps hold of good folks who might do great work elsewhere.
posted by Orly Lobel
I promised Victor Fleisher to return to his reflections on team production. Vic raised the issue of team production and the challenge of monitoring individual performance. In Talent Wants to Be Free I discuss some of these challenges in the connection to my argument that much of what firms try to achieve through restrictive covenants could be achieved through positive incentives:
“Stock options, bonuses, and profit-sharing programs induce loyalty and identification with the company without the negative effects of over-surveillance or over-restriction. Performance-based rewards increase employees’ stake in the company and increase their commitment to the success of the firm. These rewards (and the employee’s personal investment in the firm that is generated by them) can also motivate workers to monitor their co-workers. We now have evidence that companies that use such bonus structures and pay employees stock options outperform comparable companies .”
But I also warn:
“[W]hile stock options and bonuses reward hard work, these pay structures also present challenges. Measuring employee performance in innovative settings is a difficult task. One of the risks is that compensation schemes may inadvertently emphasize observable over unobservable outputs. Another risk is that when collaborative efforts are crucial, differential pay based on individual contribution will be counterproductive and impede teamwork, as workers will want to shine individually. Individual compensation incentives might lead employees to hoard information, divert their efforts from the team, and reduce team output. In other words, performance-based pay in some settings risks creating perverse incentives, driving individuals to spend too much time on solo inventions and not enough time collaborating. Even more worrisome is the fear that employees competing for bonus awards will have incentives to actively sabotage one another’s efforts.
A related potential pitfall of providing bonuses for performance and innovative activities is the creation of jealousy and a perception of unfairness among employees. Employees, as all of us do in most aspects of our lives, tend to overestimate their own abilities and efforts. When a select few employees are rewarded unevenly in a large workplace setting, employers risk demoralizing others. Such unintended consequences will vary in corporate and industry cultures across time and place, but they may explain why many companies decide to operate under wage compression structures with relatively narrow variance between their employees’ paychecks. For all of these concerns, the highly innovative software company Atlassian recently replaced individual performance bonuses with higher salaries, an organizational bonus, and stock options, believing that too much of a focus on immediate individual rewards depleted team effort.
Still, despite these risks, for many businesses the carrots of performance-based pay and profit sharing schemes have effectively replaced the sticks of controls. But there is a catch! Cleverly, sticks can be disguised as carrots. The infamous “golden handcuffs”- stock options and deferred compensation with punitive early exit trigger – can operate as de facto restrictive contracts….”
All this is in line with what Vic is saying about the advantages of organizational forms that encourage longer term attachment. But the fundamental point is that stickiness (or what Vic refers to as soft control) is already quite strong through the firm form itself, along with status quo biases, risk aversion, and search lags. The stickiness has benefits but it also has heavy costs when it is compounded and infused with legal threats.
November 15, 2013 at 12:05 am Posted in: Behavioral Law and Economics, Bright Ideas, Contract Law & Beyond, Corporate Finance, Corporate Law, Economic Analysis of Law, Empirical Analysis of Law, Employment Law, Innovation, Intellectual Property, Symposium (Talent Wants to be Free), Technology, Uncategorized Print This Post No Comments
posted by Anupam Chander
In Talent Wants to Be Free, Orly Lobel’s masterfully demonstrates the importance to business, employees, and society at large of workers who are free to move and free to innovate. The symposium this week has seen well-deserved praise heaped on the book from many of the nation’s leading scholars in the area. Lobel, a legal academic, explains the law in a way that non-lawyers (and even lawyers seeking a summary of the law of covenants not to compete, confidentiality agreements, and trade secret) will greatly appreciate.
The shift she describes is part of the larger move from status to contract that has marked modernity—a world in which individuals make and remake themselves. I have myself embraced this model in my own way in my book The Electronic Silk Road. I accordingly find myself entirely sympathetic to Lobel’s prescription. In that book, I describe and embrace the ways that production processes are now splintered across the globe, with global supply chains now including services, not just manufactured parts, supplied in disparate locations. There is liberation implicit in this—on the Internet, no one knows what class or caste into which you were born (though cultural markers are never entirely absent, even in cyberspace). Equally important, it allows individuals in developing countries to participate in lucrative markets in developed countries that would deny those individuals visas.
When I moved to Northern California a decade and a half ago, I carried my Midwestern and East Coast sensibilities with me. When a former student told me he was leaving his job after just one year at one of the leading technology law firms, Wilson, Sonsini, I was not entirely sure this was wise. He joined an important Silicon Valley operating company, and worked there for two or three years. He surprised me by then informing me that he was returning to Wilson, Sonsini. I would have thought that his leaving his law firm after such a short time might have made him persona non grata there, but he returned there certainly a lot more knowledgeable about the needs of the firm’s clients. Wilson, Sonsini clearly understood the virtues of freedom of employees—seeing it not as a sign of instability or disloyalty, but a marker of curiosity, dynamism, and ambition. Lobel would certainly approve, both of the employee and of the employer.
posted by Orly Lobel
Each in his own sharp and perceptive way, Brett Frischmann, Frank Pasquale and Matthew Bodie present what are probably the hardest questions that the field of human capital law must contemplate. Brett asks about a fuller alternative vision for line drawing between freedom and control. He further asks how we should strike the balance between regulatory responses and private efforts in encouraging more openness. Finally, he raises the inevitable question about the tradeoffs between nuanced, contextual standards (what, as Brett points out, I discuss as the Goldilocks problem) versus rigid absolute rules (a challenge that runs throughout IP debates and more broadly throughout law). Frank and Matt push me on the hardest problems for any politically charged debate: the distributive, including inadvertent and co-optive, effects of my vision. I am incredibly grateful to receive these hard questions even though I am sure I am yet to uncover fully satisfying responses. Brett writes that he wanted more when the book ended and yes, there will be more. For one, Brett wanted to hear more about the commons and talent pools. I have been invited to present a new paper, The New Cognitive Property in the Spring at a conference called Innovation Beyond IP at Yale and my plan is to write more about the many forms of knowledge that need to be nurtured, nourished, and set free in our markets.
Matt describes his forthcoming paper where he demonstrates that “employment” is reliant on our theory and idea of the firm: we have firms to facilitate joint production but we need to complicate our vision of what that joint production, including from a governance perspective, looks like. “Employers are people too” Matt reminds us, as he asks, “Do some of the restrictions we are talking about look less onerous if we think of employers as groups of people?” And my answer is yes, of course there is a lot of room for policy and contractual arrangements that prevent opportunism and protect investment: my arguments have never been of the anarchic flavor “let’s do away with all IP, duties of loyalty, and contractual restrictions”. Rather, as section 2 (chapters 3-8) of Talent Wants to Be Free is entitled we need to Choose Our Battles. The argument is nicely aligned with the way Peter Lee frames it: we have lots of forms of control, we have many tools, including positive tool, to create the right incentives, let us now understand how we’ve gotten out of balance, how we’ve developed an over-control mentality that uses legitimate concerns over initial investment and risks of opportunism and hold-up to allow almost any form of information and exchange to be restricted. So yes: we need certain forms of IP – we have patents, we have copyright, we have trademark. Each one of these bodies of law too needs to be examined in its scope and there is certainly some excess out there but in general: we know where we stand. But what about human capital beyond IP? And what about ownership over IP between employees and employers?
So yes, we need joint inventorship doctrines for sure when two inventors work together. But what about firm-employee doctrines? Do we need work-for-hire and hired-to-invent doctrines? Here we arrive to core questions about the differences between employment versus joint ventures or partnerships between people. And even here, the argument is that we continue to need during employment certain firm protections over ownership. But the reality is that so many highly inventive and developed countries, diverse as Finland, Sweden, Korea, Japan, Germany, and China, all have drawn more careful lines about what can fall under “service inventions” or inventions produced within a corporation. These countries have some requirement for fair compensation of the employee, some stake in inventions, rather than a carte blanche to everything produced within the contours of the firm. The key is a continuous notion of sharing, fairness and boundaries that we’ve lost sight of. Intense line-drawing as Brett would have it that is based on context and evidence, not on an outdated version of the meaning of free markets.
What about non-competes and trade secrets? Again, my argument is that these protections alternate, they should be discussed in relation to one another, and we need to understand their logic, goals, and the cost/benefit of each given that they exist in a spectrum. Non-competes is the harshest restriction: an absolute prohibition post-employment to continue in one’s professional path outside the corporation. This is unnecessary. The empirics are there to support their absolute ban rather than the fine dance that of balancing that is needed with some of the other protections. Sure it makes life momentarily easier for those who want to use non-competes, but over time, not only can we all live without that harsh tool, we will actually benefit from ceding that chemical weapon in the battle over brains and instead employ more conventional arms. And yet, even in California, this insight doesn’t and shouldn’t extend to partnerships. The California policy against non-competes is limited to the employment context. If two people, as in Matt’s hypo, are together forming a business, their joint property rights in that business suggest to us that allowing some form of a covenant not to compete will be justified. There will still be a cost to positive externalities but the difference between the two forms of relationships allow for absolute ban in one and a standard of reasonableness for the other. And yes, as Brett alludes to, the world is not black and white and we will have to tread carefully in our distinctions between employees and partners.
I completely agree with Matt and Frank that there are fundamental injustices created by our entire regime of work law. Talent Wants to Be Free takes those deep structures into account in developing the more immediate and positive vision for better innovation regimes and richer talent pools. Matt writes that a more radical alternative lies within Talent but “deserves more exegesis: namely, whether we should eliminate the concept of employment entirely.” What if people will always be independent contractors?, he asks. The reforms promoted in Talent Wants to Be Free, allowing more employees more control over their human capital, indeed bring these two categories – employees and independent contractors – closer together in some respects. But far more would be needed to shift our work relations to be more “democratic and egalitarian: a post-industrial Jeffersonian economy.” As both Frank and Matt show, in their own scholarship and in their provocative comments here, this will require us to rethink so much of the world we live in.
Frank Pasquale’s review is so rich that I hope he extends and publishes it as a full article. Frank says that “for every normative term that animates [Orly’s] analysis (labor mobility, freedom of contract, innovation, creative or constructive destruction) there is a shadow term (precarity, exploitation, disruption, waste) that goes unexplored.” I would agree that the background rules that define our labor market, at will employment, inequality, class and power relations, are not themselves the target of the book. They do however deeply inform my analysis. To me, the symmetry I draw between job insecurity and the need for job opportunity is not what Frank describes as a “comforting symmetry”. It is a call for the partial correction of an outrageous asymmetry. And yes, as I mentioned at the very beginning of the symposium, I hoped in writing the book to shift some of the debates about human capital from the stagnating repetition of arguments framed as business-labor which I view not only as paralyzing and strategically unwise but also as simply incorrect and distorting. There is so much more room for win-win than both businesses and labor seem to believe. On that level, I think Frank and I actually disagree about what we would define as abuse. I do in fact believe that many of us can passionately decide to give monetary gains in return for a job that provides intangible benefits of doing something we love to do. Is that always buying into the corporate fantasy? Is that always exploitation? Don’t all of us do that when we become scholars? Still, of course I agree with many of the concrete examples that Frank raises as exploitation and precarious work – he points to domestic workers, which is a subject I have written about in a few articles (which I just realized I should probably put on ssrn - Family Geographies: Global Care Chains, Transnational Parenthood, and New Legal Challenges in an Era of Labor Globalization, 5 CURRENT LEGAL ISSUES 383 (2002) and Class and Care, 24 HARVARD WOMEN’S LAW JOURNAL 89 (2001)]. Frank describes a range of discontent in such celebrated workplaces as Silicon Valley giants, which I too am concerned with and have thought about how new hyped up forms of employment can become highly coercive. Freeing up more of our human capital is huge, but yes, I agree, it doesn’t solve all the problems of our world and by no means should my arguments about the California advantage in the region’s approach to human capital and knowledge flow be read as picturing everything and anything Californian as part of a romantic ideal.
November 14, 2013 at 4:21 pm Posted in: Behavioral Law and Economics, Book Reviews, Bright Ideas, Empirical Analysis of Law, Employment Law, Innovation, Intellectual Property, Law and Inequality, Law and Psychology, Symposium (Talent Wants to be Free), Technology, Uncategorized Print This Post No Comments
posted by Orly Lobel
As Catherine Fisk and Danielle Citron point out in their thoughtful reviews here and here, the wisdom of freeing talent must go beyond private firm level decisions; beyond the message to corporations about what the benefits of talent mobility, beyond what Frank Pasquale’s smartly spun as “reversing Machiavelli’s famous prescription, Lobel advises the Princes of modern business that it is better to be loved than feared.” To get to an optimal equilibrium of knowledge exchanges and mobility, smart policy is needed and policymakers must to pay attention to research. Both Fisk and Citron raise questions about the likelihood that we will see reforms anytime soon. As Fisk points out — and as her important historical work has skillfully shown, and more recently, as we witness developments in several states including Michigan, Texas and Georgia as well as (again as Fisk and Citron point out) in certain aspects of the pending Restatement of Employment — the movement of law and policy has actually been toward more human capital controls rather than less. This is perhaps unsurprising to many of us. Like with the copyright extension act which was the product of heavyweight lobbying, these shifts were supported by strong interest groups. What is perhaps different with the talent wars is the robust evidence that suggests that everyone, corporations large and small, new and old, can gain from loosening controls. Citron points to an irony that I too have been quite troubled by: the current buzz is about the intense need for talent, the talent drought, the shortage in STEM graduates. As Citron describes, the art and science of recruitment is all the rage. But while we debate reforms in schooling and reforms in immigration policies, we largely neglect to consider a reality of much deadweight loss of through talent controls.
The good news is that not only in Massachusetts, where the governor has just expressed his support in reforming state law to narrow the use of non-competes, but also in other state legislatures , courts and agencies, we see a greater willingness to think seriously about positive reforms. At the state level, the jurisdictional variations points to the double gain of regions that void or at least strongly narrow the use of non-competes. California for example gains twice: first by encouraging more human capital flow intra-regionally and second, by its willingness to give refuge to employees who have signed non-competes elsewhere. In other words, the positive effects stem not only from having the right policies of setting talent free but also from its comparative advantage vis-à-vis more controlling states. This brain gain effect has been shown empirically: areas that enforce strong post-employment controls have higher rates of departure of inventors to other regions. States that weakly enforce non-competes are on the receiving side of the cream of the crop. One can only hope that legislature and business leaders will take these findings very seriously.
At the federal level, in a novel approach to antitrust the federal government recently took up the investigation of anti-competitive practices between high-tech giants that had agreed not to poach one another’s employee. This in fact relates to Shubha Gosh’s questions about defining competition and the meaning of free and open labor markets. And it is a good moment to pause about the extent to which we encourage secrecy in both private and public organizations. It is a moment in which the spiraling scandals of economic espionage by governments coupled with leaks and demand for more transparency require us to think hard. In this context, Citron is right to raise the question of government 2.0 – for individuals to be committed and motivated to contribute to innovation, they need some assurances that their contributions will not be entirely appropriated by concentrated interests.
November 14, 2013 at 1:36 am Posted in: Antitrust, Articles and Books, Behavioral Law and Economics, Corporate Law, Economic Analysis of Law, Empirical Analysis of Law, Employment Law, Government Secrecy, Intellectual Property, Law and Psychology, Symposium (Talent Wants to be Free), Technology Print This Post One Comment
posted by Matthew Bodie
Many thanks to Deven and Orly for organizing this online symposium and for letting me join in. Talent Wants to Be Free is a real tour de force: original and engaging, thoughtful and thought-provoking. Orly is likely the only person who could have written this book, as it deftly combines research from a variety of academic literatures to make novel observations while at the same time remaining understandable and even approachable. As other participants have mentioned, I do hope it gets read by policymakers and thought leaders who are contemplating how to bring more innovation to their city, state, or country. Given the burgeoning interest in entrepreneurship (see, e.g., this program on St. Louis), the book should find a place on many bookshelves.
Since I’m starting in the midst of an already heady discussion, I wanted to build on what Shuba and Vic mentioned about the theory of the firm, as well as Orly’s response. I argue in a forthcoming paper that our notion of “employment” is completely connected to our idea of the economic firm: you can’t have employees without an employer, and the employer is a firm. Why do we have these mechanisms for joint production? The short answer, I think, is that we need firms to facilitate joint production. There’s only so much we can do on our own, and once we start working together we need legal and economic structures to manage that collaboration. Shuba and Vic both discuss how the theory of the firm literature might provide an antithesis to Orly’s thesis in terms of the benefits of organized team structures that, to some extent, constrain individual workers. Orly’s response agrees that firms play a useful role, but she argues that much of the existing theory-of-the-firm literature depends on the “orthodox” model of employer protectionism. However, I think both sides are missing an important aspect of the issue: namely, the governance of firms.
In both academic and popular literature, employers/firms/corporations are characterized as large, faceless institutions that act autonomously in their own self-interest. But firms are just collections of individuals with various economic and legal relationships who are acting together in the context of a legal entity. In other words, employers are people too — not individual persons, but groups of people. Do some of the restrictions we are talking about look less onerous if we think of employers as groups of people? Let’s take, for example, the work-for-hire doctrine. Does that doctrine look less punitive if five people create a firm to work together on a collection of projects, and they jointly agree to share their intellectual property rights with one another? If one of the five breaks the deal and takes off with the rights to a key component of the research, the work-for-hire doctrine looks like it’s pro-employee — at least, for the four other employees involved. Although Orly’s Evan Brown example (pp. 141-44) looks like blatant opportunism by a large corporation, in other instances employees as a whole may end up better off if one of their number can’t defect to the detriment of the joint enterprise.
posted by Frank Pasquale
The reader of Talent Wants to be Free effectively gets two books for the price of one. As one of the top legal scholars on the intersection of employment and intellectual property law, Prof. Lobel skillfully describes key concepts and disputes in both areas. Lobel has distilled years of rigorous, careful legal analysis into a series of narratives, theories, and key concepts. Lobel brings legal ideas to life, dramatizing the workplace tensions between loyalty and commitment, control and creativity, better than any work I’ve encountered over the past decade. Her enthusiasm for the subject matter animates the work throughout, making the book a joy to read. Most of the other participants in this symposium have already commented on how successful this aspect of the book is, so I won’t belabor their points.
Talent Want to Be Free also functions as a second kind of book: a management guide. The ending of the first chapter sets up this project, proposing to advise corporate leaders on how to “meet the challenge” of keeping the best performers from leaving, and how “to react when, inevitably, some of these most talented people become competitors” (26). This is a work not only destined for law schools, but also for business schools: for captains of industry eager for new strategies to deploy in the great game of luring and keeping “talent.” Reversing Machiavelli’s famous prescription, Lobel advises the Princes of modern business that it is better to be loved than feared. They should celebrate mobile workers, and should not seek to bind their top employees with burdensome noncompete clauses. Drawing on the work of social scientists like AnnaLee Saxenian (68), Lobel argues that an ecology of innovation depends on workers’ ability to freely move to where their talents are best appreciated.
For Lobel, many restrictions on the free flow of human capital are becoming just as much of a threat to economic prosperity as excess copyright, patent, and trademark protection. Both sets of laws waste resources combating the free flow of information. A firm that trains its workers may want to require them to stay for several years, to recoup its investment (28-29). But Lobel exposes the costs of such a strategy: human capital controls “restrict careers and connections that are born between people” (32). They can also hurt the development of a local talent pool that could, in all likelihood, redound to the benefit of the would-be controlling firm. Trapped in their firms by rigid Massachusetts’ custom and law, Route 128′s talent tended to stagnate. California refused to enforce noncompete clauses, encouraging its knowledge workers to find the firms best able to use their skills.
I have little doubt that Lobel’s book will be assigned in B-schools from Stanford to Wharton. She tells a consistently positive, upbeat story about management techniques to fraternize the incompatibles of personal fulfillment, profit maximization, and regional advantage. But for every normative term that animates her analysis (labor mobility, freedom of contract, innovation, creative or constructive destruction) there is a shadow term (precarity, exploitation, disruption, waste) that goes unexplored. I want to surface a few of these terms, and explore the degree to which they limit the scope or force of Lobel’s message. My worry is that managers will be receptive to the book not because they want talent to be free in the sense of “free speech,” but rather, in the sense of “free beer:” interchangeable cog(nitive unit)s desperately pitching themselves on MTurk and TaskRabbit.
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November 13, 2013 at 9:59 am Posted in: Book Reviews, Corporate Law, Employment Law, Intellectual Property, Philosophy of Social Science, Political Economy, Sociology of Law, Symposium (Talent Wants to be Free) Print This Post No Comments
posted by Orly Lobel
Both Vic Fleisher and Shubha Ghosh in their thoughtful commentary about Talent Wants to Be Free invoke the theory of the firm to raise question about the extent of desirable freedom in talent and knowledge flows. In its basic iteration, the theory of the firm suggests that arms-length contracting will not be optimal when one party has the ability to renegotiate and hold the other party up, which is the conventional rational for the desirability of talent controls. This is what I describe in the book as the Orthodox Model of employment intellectual property: firms fear making relational investment in employees and then having the employees renegotiate the contract under a threat of exit. Firms respond through mobility restrictions aimed at eliminating the transaction costs of this kind of opportunism. In the book, I accept, at least for some situations, this aspect of the benefits and confidence that are created for firms in internalizing production and ensuring ongoing loyalty by all players. The orthodox model thus explains post-employment controls as necessary to encourage optimal investment within the corporation. More company controls = more internal R&D and human capital investment. The new model developed in the book doesn’t deny these benefits but argues that the orthodox model is incomplete. The Dynamic-Dyadic Model asks about the costs and benefits when controls are employed. It suggests that yes, often, protecting human capital and trade secret investments is often in the immediate interest of a company, but that too much control becomes a double-edged sword. This is because of both the demotivating effects on employee performance when lateral markets are reduced and because over-time, although information leakage and job-hopping by talented workers may provide competitors with undue know-how, expertise, and technologies, constraining mobility reduces knowledge spillovers and information sharing that outweigh the occasional losses. The enriched model is supported by a growing body of empirical evidence that finds that regions with less controls and more talent freedom, such as California, have in fact more R&D investment, quicker economic growth and greater innovation.
Vic is of course right that one solution to this problem is to recreate high-powered (market-like) incentives for performance within the firm. This is an aspect that I am greatly interested in and I analyze it in Talent Wants to Be Free as the question of whether controls and restrictions can effectively alternate with the carrots of performance-based compensation, vesting interests, loyalty inducing work environments, employee stock options and so forth. I too like Shubha am a fan of Hirschman’s Exit, Voice, and Loyalty and have found it useful in analyzing employment relations. I view the behavioral research as shedding light on these questions of what these intra-firm incentives need to look like in order to preserve the incentive to innovate. In a later post I will elaborate on the monitoring and motivational tradeoffs that exist in individual and group performance.
More generally, though, the research suggests that at least in certain industries, most paradigmatically fast-paced, high-tech fields, innovation is most likely when the contracting environments have thick networks of innovators that are mobile (i.e. Silicon valley) and firms themselves are horizontally networked. The flow of talent and ideas is important to innovation and rigid boundaries of the firm can stifle that interaction even with the right intra-firm incentives. The benefits in terms of innovation rise in these structures of denser inter-firm connections, but also, the costs of opportunism that drive the conventional wisdom are in fact lower than the traditional theory of the firm would predict. This is because talent mobility is a repeated game and at any given moment, a firm can be on either side of the raiding and poaching. Policies against talent controls have the effect of reducing the costs of opportunistic renegotiation by ensuring the firm can hire replacement innovators when it loses its people. To push back on Vic’s phrasing, talent wants to be appreciated and free. MIT economist Daron Acemoglu’s analysis of investments and re-investments in workers as a key ingredient of production and growth is helpful in understanding some of this dynamic. People invest in their own human capital without knowing the exact work they will eventually do, just as companies must make investment decisions in technology and capital funds without always knowing who they will end up hiring. Acemoglu describes the positive upward trajectory under these conditions of uncertainty: When workers invest more in their human capital, businesses will invest more because of the prospects of acquiring good talent. In turn, workers will invest more in their human capital as they may end up in one or more of these companies. The likelihood of finding good employers creates incentives for overall investments in human capital.
November 13, 2013 at 1:12 am Posted in: Behavioral Law and Economics, Economic Analysis of Law, Empirical Analysis of Law, Employment Law, Innovation, Intellectual Property, Symposium (Talent Wants to be Free), Technology, Uncategorized Print This Post No Comments
posted by Orly Lobel
This is a thrilling week for Talent Wants to Be Free. I am incredibly honored and grateful to all the participants of the symposium and especially to Deven Desai for putting it all together. It’s only Monday morning, the first official day of the symposium, and there are already a half a dozen fantastic posts up, all of which offer so much food for thought and so much to respond to. Wow! Before posting responses to the various themes and comments raised in the reviews, I wanted to write a more general introductory post to describe the path, motivation, and goals of writing the book.
Talent Wants to Be Free: Why We Should Learn to Love Leaks, Raids and Free Riding comes at a moment in time in which important developments in markets and research have coincided, pushing us to rethink innovation policy and our approaches to human capital. First, the talent wars are fiercer than ever and the mindset of talent control is rising. The stats about the rise of restrictions over human capital across industries and professions are dramatic. Talent poaching is global, acquisition marathons increasingly focus on the people and their skills and potential for innovation as much as they look at the existing intellectual property of the company. And corporate espionage is the subject of heated international debates. Second, as a result of critical mass of new empirical studies coming out of business schools, law, psychology, economics, geography, we know so much more today compared to just a few years ago about what supports and what hinders innovation. The theories and insights I develop in the book attempt to bring together my behavioral research and economic analysis of employment law, including my experimental studies about the effects of non-competes on motivation, my theoretical and collaborative experimental studies about employee loyalty and institutional incentives, and my scholarship about the changing world of work, along with theories about endogenous growth and agglomeration economies by leading economists, such as Paul Romer and Michael Porter, and new empieircal field studies by management scholars such as Mark Garmaise, Olav Sorenson, Sampsa Samila, Matt Marx, and Lee Fleming. Third, as several of the posts point out, these are exciting times because legislatures and courts are actually interested in thinking seriously about innovation policy and have become more receptive to new evidence about the potential for better reforms.
As someone who teaches and writes in the fields of employment law, I wrote the book in the hopes that we can move beyond what I viewed as a stale conversation that framed these issues of non-competes, worker mobility, trade secrets and ownership over ideas as labor versus business; protectionism versus free markets (as is often the case with other key areas of my research such as whistleblowing and discrimination). A primary goal was to shift the debate to include questions about how human capital law affects competitiveness and growth more generally. Writing about work policy, my first and foremost goal is to understand the nature of work in its many evolving iterations. Often in these debates we get sidetracked. While we have an active ongoing debate about the right scope of intellectual property, under the radar human capital controls have been expanding, largely without serious public conversation. My hope has been to encourage broad and sophisticated exchanges between legal scholars, policymakers, business leaders, investors, and innovators.
And still, there is so much more to do! The participants of the symposium are pushing me forward with next steps. The exchanges this week will certainly help crystalize a lot of the questions that were beyond the scope of the single book and several new projects are already underway. I will mention in closing a couple of other colleagues who have written about the book elsewhere and hope they too will join in the conversation. These include a thoughtful review by Raizel Liebler on The Learned FanGirl, a Q&A with CO’s Dan Solove, and other advance reviews here. Once again, let me say how grateful and appreciative I am to all the participants. Nothing is more rewarding.
November 11, 2013 at 5:25 pm Posted in: Behavioral Law and Economics, Book Reviews, Corporate Law, Economic Analysis of Law, Empirical Analysis of Law, Employment Law, Innovation, Intellectual Property, Symposium (Talent Wants to be Free), Technology, Uncategorized Print This Post No Comments
Talent Wants To Be Free Symposium: Lending Support to Lawmakers and Raising Questions for Open Government Efforts
posted by Danielle Citron
Like my fellow symposium participants, I loved Orly’s book. As Catharine Fisk noted, Orly’s stories and lessons, informed by literature, experiments, and more, captivated me. Beside teaching me much, more importantly, it will educate policymakers. Talent Wants to Be Free serves as a slam-dunk rebuttal to those who say that legal scholarship lacks value in the real world. Orly’s book is a must read for state legislators interested in encouraging innovation in their backyards. Some lawmakers have proposed bills to limit or eliminate non-compete agreements as contrary to public policy. As Orly’s book demonstrates, good for them and for all of us. Orly’s book provides powerful arguments for the adoption of those laws and for other states to pay attention. And it sounds like an upcoming Restatement will recommend rules that would send judges in the opposite direction–towards less mobility, not more. They too need to read Orly’s original research and powerful arguments.
The book raised an interesting disconnect about our understanding of the mobility of talent. On the one hand, the media is all abuzz about companies that find talent for employers who presumably could move from their current jobs. As a recent New York Times piece discussed, analytics firms crunch data to search for and assess specialized talent in particular fields. Remarkable Hire scores a candidate’s talents by looking at how others rate her online contributions. Talent Bin and Gild create lists of potential hires based on online data. According to the Times, big-name companies like Facebook, Wal-Mart, and Amazon use these technologies to find and recruit job candidates. These stories don’t take into account the barriers that Orly’s book discusses: strictly interpreted non-compete agreements and their functional equivalents such as the inevitable disclosure of trade secrets concept. These analytics firm are likely to identify fabulous talent who cannot realistically move or at least may not be worth the money to buy them out of their non-competes. Of course, California companies like Facebook can gorge on Big Data about talent all they want–California lawmakers have banned non-competes.
A concern that came to mind is whether Government 2.0 efforts are worth it for employees. What if employees spend their free time innovating for government and it turns out that they shared some skill that their employer can claim ownership over or worse sue the employee for spilling trade secrets. Reading Orly’s book raised concerns about the practical problems and perils raised by lending one’s time to government hack-a-thons and the like. I don’t have any concrete answers to these problems except to tell lawmakers and employers to listen to Orly’s recommendations.
posted by Catherine Fisk
This book is a terrific synthesis of many literatures on legal rules regulating employee-generated intellectual property, human capital, and the nature of innovation. Through her broad and perceptive reading in law, economics, sociology, geography, psychology, and organizational behavior, among other fields, Lobel has compiled a persuasive argument in favor of free employee mobility. She explains the law of trade secrets, noncompetition and nondisclosure agreements, pre-invention assignment agreements, and works for hire in copyright in terms that can be understood by nonlawyers. She explains economic concepts like prisoners’ dilemmas, agglomeration economies, and the rigidity of labor markets in simple terms and links them to legal rules and to news accounts of how legal rules affect company and employee behavior.
One of the book’s great strengths is how engaging the writing is and how deftly Lobel constructs her synthesis. The prose style is jaunty. The examples are ripped from the pages of the Wall Street Journal, magazines aimed at business readers, academic studies published in peer-reviewed journals of business and economics, as well as canonical stories of genius inventors and entrepreneurs ranging from Ben Franklin to Thomas Edison to Steve Jobs. In a mere two pages, she skips from academic studies of business to anecdotes about her experiences consulting with inventors to a story reported in Forbes Magazine to Joseph Schumpeter’s classic economic works published in the 1920s (pp. 202-203). She makes great use of a diversity of sources to develop her argument about why the law ought to allow a great deal more mobility of human capital than it currently does.
The book is clearly aimed at an audience of business people and policy makers rather than legal scholars. As she says at the end, “If many of your best employees are leaving you, it serves as a warning sign to make changes.” (p. 244) That is all to the good. Many of the ideas in this book aren’t new – scholars have been criticizing overbroad enforcement of noncompetes, trade secrets, and invention and copyright assignments for decades, and the research on agglomeration economies (like Silicon Valley) is no longer novel. But the broad scholarly consensus in both law and business/economics that employee mobility leads to economic growth has not yet had much impact on law. Indeed, the proposed Restatement of Employment Law is poised to make some aspects of the law in this area more hostile to employee mobility. So an appeal to nonlawyers seems essential. As Lobel points out (pp. 72-73), at least one state (Massachusetts) has been engaged in a serious look at whether to dramatically change its laws governing noncompete agreements to allow much more employee mobility, and a book like this is tailor made to be read by legislators mulling over whether Massachusetts businesses would be helped or hurt by making noncompete agreements unenforceable. She translates the empirical work of a number of scholars into clear and simple lessons for business executives and policy makers.
posted by Victor Fleischer
Orly’s book is terrific–a model for pulling together theory, stories, and data to argue for a dynamic system of free-flowing employees, resources, and ideas. I am persuaded that non-competes and other human capital controls often cause more harm than good.
But amidst the many stories and studies, I would have welcomed more theory. Okay, employee mobility is good. But how good? How far should we push this idea?
Consider a society where every worker is an at-will contractor, working singly on a single project or task. Such a purely contractual world would be dynamic, as workers jump from project to project like insects chasing nectar. But would it maximize the value of production?
To have a theory of employee mobility, one must have a theory of the firm. Why do we have firms and employees in the first place, instead of a web of independent contractor relationships? The idea of team production (Alchian & Demsetz) may be useful here: production may be maximized by working in teams. This seems to be as likely to be true for innovative production as any other form of production.
Through this team production lens, the critical information cost is the difficult and costly monitoring and metering of individual performance within a group activity. While Orly notes that “[t]oo much supervision can smother creative sparks” (p. 133), too little supervision means that high performers are not appreciated and rewarded. Organizing team production within a firm gives entrepreneurs and managers an incentive to monitor effectively. It is impossible to get performance incentives precisely right at the individual level, and unhappy employees have a tendency to jump ship. But human capital controls–hard or soft–may induce employees to stay put and allow managers to evaluate employees over a longer period of time.
(Soft controls–under the umbrella of what Orly calls “stickiness”–include health insurance, deferred comp, workplace perks (e.g. free food, working on a beautiful campus), and the transaction costs of moving.)
Firms are themselves a soft form of human capital control. When we agree to work for someone else, we give up some freedom. But the existence of firms is, perhaps, a better way to maximize team production and, at least under some conditions, to promote innovation.
My point is that talent doesn’t want to be free, it wants to be appreciated. Firms that find the most efficient way to appreciate and reward talent (financially and otherwise) without devolving into an eat-what-you-kill culture have a competitive advantage.
posted by Brett Frischmann
I applaud Orly for this excellent contribution. There is much to praise and much to comment on. I was particularly attracted to the interdisciplinary perspective of the book and its heavy reliance on and reporting of studies in economics, psychology, and other literatures—including but not limited to Orly’s original research. The book provides an excellent discussion of various dimensions of innovation studies. It also provides compelling descriptions of many different real world contexts where the lessons from the academic studies play out on the ground. The combination is quite amazing. I also think it is quite important that she focused attention on people, and the human, social and intellectual capital that actually drives innovation across sectors. Too often, innovation studies lose sight of the actual people involved. Orly’s book covers so much ground and connects with various topics I’m also interested in. It is difficult for me to pick a particular topic of theme to comment on in this blog post. (I’m tempted, for example, to push her to say more about technology transfer offices at universities and how they’ve evolved over time in terms of their approach to control. I also would like to hear *much* more about the application of commons governance ideas.) Instead, I’ll say something about the broad ambition of the book.
Orly presents the book as new wisdom – a “dynamic model” — to challenge conventional wisdom – the “orthodox model” – about the necessity of strict control over talented employees, ideas, and various other complementary resources that drive creative and innovative progress and economic growth. I think the book does a wonderful job of pointing out the many ways in which theoretical and empirical work across many fields of inquiry combine to challenge if not completely undermine the conventional wisdom. Controls on the flow of ideas and employees often backfire and are costly to the firm and the public. Orly describes very well the substantial benefits – benefits all too often ignored or assumed away – in sustaining the freedom to operate, to move, to experiment, to tinker, and so on. She effectively makes the case for a much more nuanced approach to thinking about innovation and the various ways in which freedom (to operate, to move, to think, to experiment, to ride, etc.) impact innovation and social welfare more generally.
That said, I don’t think the book supplies a fully formed alternative vision, theory or model about what degree of control/freedom may be needed to sustain innovation. The Goldilocks nature of the problem, which Orly describes, surfaces throughout, and it is hard to know where or how to strike the right balances as a matter of public policy (law) and private strategy (corporate practice). The book at times seems to suggest that it will offer a solution or that the solution might be absolute freedom / no control. But that is not really what the book ends up saying, as I understand it. In the end, we remain stuck with the problem of nuance and variety and context- or industry-specific balancing. Frankly, I don’t think this is a bad result at all; it’s probably where we need to be if we’re basing our judgments in reality.
For some reason, I was surprised when the book ended. I wanted more. I expected more. In a sense, this is a good thing because the book provoked me to think about and look for more. But I wonder whether the final part of the book could have tied the themes together a bit more tightly and at least proposed a research agenda for developing a more nuanced approach to innovation. Many of the pieces of the puzzle are in Orly’s book. But the puzzle remains incomplete.
posted by Shubha Ghosh
Orly’s book is terrific. Let’s just get that straight. The book is filled with the kind of creative energy that Orly’s reform proposals seek to release. But the emerging (or worse, entrenched) fud in me had to react to the celebration of freedom that the book exhorts. Throughout the past several centuries of human history, perhaps through all of human history, appeals to freedom have interrupted periods of dominance, control, and centralization. “Talent Wants to be Free” is another example of the pendulum swinging away from centralized control. Whether that is a rightward or leftward swing, I will leave for others to sort out. While Orly does not extol “stealing this book,” the arguments against over regulation by government (in the form of strong intellectual property laws) and against overly bureaucraticized mega-corporations have a Hoffmanesque quality. Of course, nothing wrong with that, but the skeptic in me wonders if unalloyed freedom is unquestionably a good thing.
Orly appeals to competition as an engine of innovation, and she points to many examples that limit the liberating force of competition. The proposition that competition fuels innovation is hard for anyone, in my mind, to contest. Harder still is understanding what competition is. Spencerian renditions of Darwin as applied to social dynamics has been a recipe for disaster and elitism, leading to the very concentration that Orly decries. If competition is meant to guide innovation, it cannot be hard core laissez-faire. Is competition then the nicely diagrammed exposition of Econ 101, channeling Alfred Marshall into prices being driven to MC and minimum AC, profits dissipated, surpluses maximized, or perhaps the more elaborate auctioneering process Pareto optimally? Although an elegant formulation, the technical rendition of the dirty world of markets ignores the details of transactions and transacting, the role of legal rules and of technicians like corporate attorneys, accountants, and bankers. Perhaps Coase has the right take on competition as a form of endless bargaining and negotiation as social costs and benefits are readily transformed, transaction costs willing, into private ones. I have no doubt that competition drives innovation, but the hard question is what kind of competition. It is easy, however, to translate competition into unfettered freedom. That translation in my mind does not wholly work.
What is lost in translation by rendering competition as ”freedom” is recognizing the need for organization to help free individuals reach their potential. Organization writ large here includes the family, the school, the business entity, and, yes, the state. Freedom without organization is anarchy and anarchy leads to either dissipation of energy into entropy (and yes that is a nod to the ideas of Thomas Pynchon, especially Gravity’s Rainbow in which flights of freedom give way Icarus-like to crashing and destruction) or to dominance and concentration by the powerful (another nod). Neither is conducive to innovation.
Although Orly makes somes reference to Coase, I felt that there was not appreciation of his “A Theory of the Firm,” which demonstrated that organization within an entity might be preferable to the freedom of exchange that is a hallmark of competition. But Coase’s notion of the firm was not supplanting competition, Instead, by internalizing exchange, competition of sorts is brought into the organization as individuals vie for position within the hierarchy. In this way, Coase is not justifying the Soviet state or centralized planning, both of which are ineffective and in opposition to innovation. Instead, consistent with Orly’s vision of freedom, the Coasean firm internalizes competition but also must confront competition that occurs through exit or dissent in order to avoid the exact forms of concentration that Orly correctly finds as antithetical to innovation.
My point here is that freedom is worthless without some form of organization that provides soil for freedom’s fruit. One example of this is the concern over D2P, a new acronym a colleague recently assaulted on my overly taxed brain. It stands for “Distribution to Product” and refers to the difficulty of going from labs to markets. Freedom within the university certainly leads to the creation of all sorts of inventions and new works. The problem is the lack of institutions for facilitating the movement from the creative stage to the commercialization stage. That movement is not dependent solely on the freedom of inventor, financier, marketer, and corporate attorney. Instead such movement is impeded by too much freedom and not enough organization. Perhaps I am just raising dull questions about practical details. But my point is that extolling freedom without organization may be as big a problem as extolling centralized control over freedom,
I will end with an advertisement for myself. I have been working on a piece on nonprice competition and intellectual property, and I plan to write it after I finish my articles on the Federal Circuit’s contract law jurisprudence and Holmes’ intellectual property jurisprudence at the Mass and US Supreme Courts. The nonprice competition piece draws on Hirshcman’s theory of nonprice competition from his “Exit, Voice, and Loyalty.” Before I expand that piece into 50+ pages, let me try to distill that article-to-be into a few sentences.
Exit and voice serve as ways to promote competition through signals other than price. Orly’s book provides a vivid and forceful exposition of exit and voice as examples of freedom. But loyalty is necessary since organizations often act as the incubator for freedom. The problem is that loyalty can quash freedom through acts of provincialism, xenophobia, and blind faith. The difficult balance requires structuring loyalty so as not to supplant exit and voice but to channel those two freedoms into creating dynamic, evolving organizations that promote innovation. In short, organization without freedom is tyranny, but freedom, without organization, is anarchy, with all its attendant costs.
posted by Frank Pasquale
Anyone teaching administrative law will probably be reviewing several cases involving the National Labor Relations Board. In an era of declining unionism, the agency can seem like a bit of a relic. On the other hand, the rising tide of worker actions at fast food and retail giants suggests its basic premise—workplace democracy—may be needed now more than ever. Unfortunately, two presidential moves particularly eroded the agency’s ability to adjudicate disputes neutrally:
Congress presumed that all of the NLRB members should represent neither labor nor management, but rather the public. But in 1953, President Dwight Eisenhower, the first Republican president to make NLRB appointments, broke the non-partisan pattern and appointed three Republican lawyers with management backgrounds and two non-partisans. That created what later administrations understood as a “tradition” of three appointments from the president’s party and two from other backgrounds (eventually defined as from the opposing party). . . . Meanwhile, the National Association of Manufacturers, a big business group, pursued a policy of undermining the Wagner Act by promoting appointees who did not fully support the law’s goals, a strategy that Ronald Reagan escalated dramatically in 1981 by appointing prominent opponents of unionization to the NLRB, including the office of chairman.
Reagan signaled a new Republican strategy on labor. . . . As Cleveland State University law school professor Joan Flynn noted in a 2000 article in the Ohio State Law Journal, NLRB votes became more sharply divided along lines of class and ideology after Reagan named blatantly anti-union appointees to the board.
Given this history, and hardening GOP stances, it’s no wonder that the “A.F.L.-C.I.O. has set up a dozen committees — of historians, young workers, Web experts, pollsters — to propose ways to reinvent labor.”
posted by Dave Hoffman
[A brief note of apology: it's been a terrible blogging summer for me, though great on other fronts. I promise I'll do better in the coming academic year. In particular, I'd like to get back to my dark fantasy/law blogging series. If you've nominations for interviewees, email me.]
One of the major lessons of the cultural cognition project is that empirical arguments are a terrible way to resolve value conflicts. On issues as diverse as the relationship between gun ownership and homicide rates, the child-welfare effects of gay parenting, global warming, and consent in rape cases, participants in empirically-infused politics behave as if they are spectators at sporting events. New information is polarized through identity-protective lenses; we highlight those facts that are congenial to our way of life and discounts those that are not; we are subject to naive realism. It’s sort of dispiriting, really. Data can inflame our culture wars.
One example of this phenomenon is the empirical debate over minimum wage laws. As is well known, there is an evergreen debate in economics journals about the policy consequences which flow from a wage floor. Many (most) economists argue that the minimum wage retards growth and ironically hurts the very low-wage workers it is supposed to hurt. Others argue that the minimum wage has the opposite effect. What’s interesting about this debate -to me, anyway- is that it seems to bear such an orthogonal relationship to how the politics of the minimum wage play out, and the kinds of arguments that persuade partisans on one side or another. Or to put it differently, academic liberals in favor of the minimum wage have relied on regression analyses, but I don’t think they’ve persuaded many folks who weren’t otherwise disposed to agree with them. Academic critics of the minimum wage too have failed to move the needle on public opinion, which (generally) is supportive of a much higher level of minimum wage than is currently the law.
How to explain this puzzle? My colleague Brishen Rogers has a terrific draft article out on ssrn, Justice at Work: Minimum Wage Laws and Social Equality. The paper urges a new kind of defense of minimum wages, which elides the empirical debate about minimum wages’ effect on labor markets altogether. From the abstract:
“Accepting for the sake of argument that minimum wage laws cause inefficiency and unemployment, this article nevertheless defends them. It draws upon philosophical arguments that a just state will not simply redistribute resources, but will also enable citizens to relate to one another as equals. Minimum wage laws advance this ideal of “social equality” in two ways: they symbolize the society’s commitment to low-wage workers, and they help reduce work-based class and status distinctions. Comparable tax-and-transfer programs are less effective on both fronts. Indeed, the fact that minimum wage laws increase unemployment can be a good thing, as the jobs lost will not always be worth saving. The article thus stands to enrich current increasingly urgent debates over whether to increase the minimum wage. It also recasts some longstanding questions of minimum wage doctrine, including exclusions from coverage and ambiguities regarding which parties are liable for violations.”
I’m a huge fan of Brishen’s work, having been provoked and a bit convinced by his earlier work (here) on a productive way forward for the union movement. What seems valuable in this latest paper is that the minimum wage laws are explicitly defended with reference to a widely shared set of values (dignity, equality). Foregrounding such values I think would increase support for the minimum wage among members of the populace. The lack of such dignitary discussions in the academic debate to date has level the minimum wage’s liberal defenders without a satisfying and coherent ground on which to stand. Worth thinking about in the waning hours of Labor’s day.
September 2, 2013 at 9:02 pm Posted in: Behavioral Law and Economics, Civil Rights, Consumer Protection Law, Contract Law & Beyond, Culture, Current Events, Empirical Analysis of Law, Employment Law Print This Post 2 Comments
posted by Frank Pasquale
Interesting to see how the three topics converge. First, an excerpt from King’s December 1961 speech to the AFL-CIO Convention:
Less than a century ago, the laborer had no rights, little or no respect, and led a life that was socially submerged and barren. . . . American industry organized misery into sweatshops and proclaimed the right of capital to act without restraints and without conscience. . . . The children of workers had no childhood and no future. They, too, worked for pennies an hour and by the time they reached their teens they were worn-out old men, devoid of spirit, devoid of hope and devoid of self-respect.
Second, from Tom Geoghegan’s analysis of King as a labor leader: “It is said that just after this speech, J. Edgar Hoover was more determined to wiretap King.”
Treating someone working for the betterment of the many, as an enemy of the state, is a core harm of politicized surveillance.
posted by Frank Pasquale
Lynn Parramore observes that exploitative practices do little to help US productivity, or even the position of firms engaging in them:
[America's] cult of endless toil doesn’t really help the bottom line. Study after study shows that overworking reduces productivity. On the other hand, performance increases after a vacation, and workers come back with restored energy and focus. The longer the vacation, the more relaxed and energized people feel upon returning to the office. Economic crises give austerity-minded politicians excuses to talk of decreasing time off, increasing the retirement age and cutting into social insurance programs and safety nets that were supposed to allow us a fate better than working until we drop.
That doesn’t seem very economically rational: why not respect Brandeis’s basic insight that “I can get 12 months of work done in 11 months, but not in 12″? One clue lies in an observation from Polish economist Michal Kalecki:
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