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The Sex Tape Litmus Test (laverick.org)
183 points by dustin on Dec 23, 2012 | hide | past | web | favorite | 135 comments



The primary function of a legal department is to provide advice that prevents legally actionable mistakes.

This advice does not have to be sane, or efficient, or indeed have any consideration towards the interests of the company other than "prevents legally actionable mistakes". A few days ago HN saw an article about setting goals and perverse incentives. This is a simple example.

Hypothetically, someone was reviewing the Sony USA employment contract and saw that there were, perhaps, non-video-game related developments which might be valuable. Then they asked the legal department "Please supply contract terms that give us as much as possible." And after an hour or two of research, they did.

The surprising thing to me is that they tried to change language for existing employees out of cycle. If they did it during a regular review cycle, even fewer people would have noticed.


> The primary function of a legal department is to provide advice that prevents legally actionable mistakes. This advice does not have to be sane, or efficient, (...)

Strong disagreement. As a counterport, would you agree to the following: ``the primary function of a programming department is to crank out code. the code doesn't have to run predictably, nor be maintainable nor indeed have any business requirements. KLOC is the king.''?

When I'm programming privately in my spare time, my code doesn't need to run, be maintainable or useful or anything. But as long as I'm clocked in during office hours, my work should further company's goals, in harmony with other teams and projects. And just as much with legal departments: those should consider the overall effects of advice they give out. If not them, who else is to do such analysis -- some meta-legal department?

Been there just recently; an employment contract template prepared for my company by a lawyer was so one-sided and full of risks for potential employees, I stood up to the CEO and voiced against its proposed form. I've warned the CEO a lot of self-respecting hackers would rather give up offer than work on such conditions. The contract, while legally covering the company, would have detrimental effect on our ability to hire good hackers in the first place.


It seems like a lot of engineers, both here and elsewhere, have a very simplistic view of what other departments do. I've seen similar simplistic statements about design and management. I guess that's just part of human nature, to develop the view that only your work is complex or nuanced.


It's not just work, and there's a name for it: http://en.wikipedia.org/wiki/Outgroup_homogeneity_bias


In this particular case though, there's not a lot of complexity or nuance, is there? It's a blanket "We own all your IP" clause in a contract.


Maybe . . . are you OK with the legal department assuming you are a lazy simpleton if you launch software with any bugs? Especially considering any misfeatures may have been implemented under management's direction?


I'm not sure that I see your point. Adding extra bits is more work for the legal team, and might lead to 'bugs', but a clause like this is going to lead to pissed off engineers who might leave.

To further mangle the analogy, what if I release bug free code that doesn't do what it's supposed to do?


Lawyers see a "mistake" and go for a landgrab. FB/Instagram TOS update was probably a similar dynamic. Legal likes to err on the side of over-reach, all other things equal.


But contracts itself are bound by city, state, and federal law, including civil, labor, IP, patent, etc...

Or you might get a bad lawyer or a favorable judge.


So? Contracts should be as close to your agreement as possible, and be within city/state/federal laws.

If your contract isn't accurate, it's like programming by hammering some shoddy crap together and letting the testers/users sort it out.


>> The primary function of a legal department is to provide advice that prevents legally actionable mistakes. This advice does not have to be sane, or efficient, (...)

>Strong disagreement. As a counterport, would you agree to the following: ``the primary function of a programming department is to crank out code. the code doesn't have to run predictably, nor be maintainable nor indeed have any business requirements. KLOC is the king.''?

I don't see where you are getting KLOC; KLOC is rarely a metric that Programmers like. They'd choose readability, or (run-time) efficiency or something.

But yes; That's what you see. In both cases, really; I know last time I went to a lawyer for help with a AUP or privacy policy, I got something ridiculously one-sided that protected me, but would have been an absolute PR disaster to actually hand out as policy.

And yeah, I've seen programmers come up with solutions that were equally good from a purely technical perspective, but equally insane from the perspective of the whole business.

This is why managing a business is so difficult. You can't expect the lawyer to understand PR any more than you can expect your programmer to understand marketing. (I mean, sometimes you get lucky and find someone that is pretty good at both... those people are quite valuable, if you can find them.)

Actually, that's another discussion entirely. When you see the company you are working for (as a narrow specialist) doing something that is bad outside of your specialty, how hard do you try to change that? I mean, certainly, you should say "This isn't my specialty, but I think doing X is wrong, I think you should do Y" - the question then, is how hard do you fight for it. I mean, it is the person managing the company's job to choose specialists who are competent. At what point do you step out and say "Hey, you screwed it up" outside of your specialty?


the primary function of a programming department is to crank out code

OP didn't say the primary function of the legal department was to crank out legal language. He does say their job is to crank out advice that "prevents legally actionable mistakes".

Similarly, I think most developers at core are expected to output code that fulfill some communicated requirement.


This is a much better comparison.

Most programmers code to a "spec" - what they were asked to do. Only a small minority would voice their opinion if the spec is badly written or the product is not a good business idea.


That is an impression of legal departments informed by what tends to be poor staffing of such departments and/or poor management scapegoating the legal department.

I used to have a very poor opinion of legal departments until I had the opportunity to work with legal departments staffed seemingly exclusively with people who were at least as sharp as the folks in engineering. Turns out, good legal departments are as interested in solving problems as good engineering departments.


just like yeti, and nobody has seen any of them


As with most departments, legal works on a continuum.

Some coders push buggy code and some coders polish their bits endlessly. The good ones write code that meet the requirements in a reasonable amount of time and move on to the next task.

Some lawyers are strict letter-of-the-law types and some will approve anything to make the profit centers happy. The good ones balance the legal risks with the commercial reality.

Under the circumstances I'd be curious to know what the cost-benefit analysis of this change might look like. Given how seldom employment contracts are negotiated and how rarely these IP clauses are enforced, my guess is the biggest cost might be something even more intangible, such as stifled employee creativity.


Do typical BigCorps require re-signing your contract during the review process? Neither of the ~300 person tech companies I've worked for have had me sign anything past the first day.


Once a year there is an email that goes out saying "the law for X has changed, and so we require you to acknowledge you know this and sign Y". Basically updates to the employee handbook.


California has a nice law that says that the employee owns IP created on his own time, unrelated to work, etc. This is a reason I moved to CA: the state I was in lacked such a law, and all the tech companies had contracts that failed the sex tape test. I suspect that for a place to flourish like Silicon Valley, it needs a law that protects self bootstrapping startups.


California law only seems different to other states. In practice, it's much the same.

Engineers often misinterpret the provisions of the law.

" (1) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or (2) Result from any work performed by the employee for the employer."

#1 is pretty vague, and it has been interpreted broadly by most courts. Almost every engineer i've talked to think it means "unrelated to the work i'm doing for the employer" (which is really part #2 of the law). However, it in fact says that not just "work related to stuff you are doing for your employer", but "work related to stuff your employer does at all or has said they will probably do in the future" can be owned by the employer, even in your spare time.

So if you work for a company that does a lot of things, you should not expect to own anything.

In practice, this is not very different from the laws of most states.

While I am a lawyer, this is not legal advice. Just trying to correct a misconception.


I guess the "unrelated to work" might be a point of debate once you create IP of high value.

In fact, in Germany we have the "Arbeitnehmererfindungsgesetz (ARBNERFG)" [1] which stipulates that your employer has first right to all patents and inventions related to your work, even if you create them in your spare time. The basic reasoning is that your employer supplies you with all tools and ressources required for the invention in question. It would be way too easy to just clock out, return to your desk and a minute later write down the world formula and sell it for billions. You're entitled to a compensation though.

The law looks a little stupid when applied to computer science but makes much more sense in a research or engineering context.

[1] I just adore german legal terms.


It's also ridiculously outdated. It's from 1957 and based on an outdated, traditional understanding of "big" industrial/engineering companies and their employees ("the little guys"). Also, it protects the companies' interests to the detriment of the employees' interests, which is understandable given that it is based on a war-time law (WWII) which was supposed to support German war engineering.


I'm not so sure that it's ridiculously outdated. Sure, it could use a brush-up but it acknowledges the basic fact that your employer often spends time educating you and allows access to ressources in your line of work that form the basis of your inventions - hence the requirement that the invention be related to your work. Fact is that inventions are rarely a stroke of genius that happens instantly in vacuum. They're often refinements and improvements of readily known things. Quite often they're obvious and simple in hindsight. It's a hard balance to strike, but just giving the option of moving all "inventions" to after-hours so that the employee gets all benefits won't cut it either, especially with modern work-time models such as flex-time or home office. I don't have a perfect solution, but giving the employer first-buy rights seems like a reasonable starting point for a compromise. The law stipulates a reasonable and fair compensation for the work provided.


I love it how German seems to be able to put the whole law in one word :) It doesn't sound that stupid, depending on what "related" means - if it is indeed almost the same as you are being paid for, then it may make some sense (I'm not sure I agree with it, as it's basically means employer owns your thoughts, which seems a weird concept to me, but even if it is wrong it's not completely stupid). If it's just "it's all computer stuff so must be the same" then it's stupid. I'd say it all depends on how the courts will be treating it.


Overly broad applications are rare in germany. If you look at an engineering or research context it's easier to nail down: If you're a researcher the employer pays you for your thought and provides the lab, access to related research, to peers to discuss stuff with etc. Now you've been working on a particularly hard problem and the stroke of genius strikes you at midnight, you get up, work straight for two days and write down the formula you've been working on for years. It's worth a billion dollars. Technically it's during off-hours, so is it yours?


There is such a law but you should not assume it means what you think it means. Talk to a legal professional if it's important to you. One IP lawyer I interacted with maintained that the rulings in actual court practice are very unfavorable to the moonlighting employees. To the point that CA labor code 2870 might as well not exist (although of course he didn't say that in so many words.) "Actual or demonstrably anticipated research or development of the employer" can be made to mean anything. I asked, "Say I worked for a company that makes software for medical devices, and I work on cell phone apps in my spare time, could they still claim that it's related to their research and development?" He said, "Yes."


I hear you. While living at my prior location, I was always integrating plausible deniability into my business plans and their initial implementations, besides keeping my work super secret. Now I don't worry about the secrecy, and feel more relaxed about deniability. (Not that I've been doing anything seriously since I moved here --- I like my team, and I would like to accomplish big things with them.)


That sucks. "Actual or demonstrably anticipated research" looks like a fairly clear attempt to make sure that companies can't just claim that they might be planning to go into some unrelated field, and it's unfortunate the courts don't see it that way.


I keep hearing this, and have taken it as gospel (I am in CA), but can someone point me to some citations? You know, just in case.... ;-)


Hi. Here's your link:

http://www.leginfo.ca.gov/cgi-bin/displaycode?section=lab...

2870 is what you're most interested in. IANAL, this is my lay understanding of the law.


Your employer should have supplied you with the necessary paperwork to sign (this part is also stipulated in California, AFAIK, that you be made aware of that right)


I've brought this up as the "child porn" clause, and had brought it up in an employment contract once many years ago. Basic language was "we own anything you create". I said "I don't really think you want that - if I create some child porn, you're the owners". I seem to remember I had some less restrictive language placed in my contract vs that one, but I don't think it made a change to anyone else's contracts.

Yes, it felt a bit 'nuclear' dropping such a charged statement like that, and even when I bring it up as an example in conversation, some people cringe - a 'sex tape' analogy might be less offensive to some, but the basic premise still stands. Any company that wants to claim ownership of every piece of content or code I 'create' needs to understand what that really entails. It might actually give some people license to work on legally questionable stuff (not child porn so much as, say, banned crypto), knowing that they don't really 'own' it and thinking someone else might be responsible for the consequences.


IANAL , but I believe in this case the offence would be in the creation and distribution of this content not necessarily in owning the IP.

Otherwise you could technically make the same argument about instagram for example.


nothing said about distributing it, although I see your point on the creation of it. But I'm not sure I'd be able to make that distinction about anything else valuable - "well, company x, you might 'own' this, but I created it and can do whatever I want with it". They want the benefits without any risks - ain't gonna happen.

Well... I say that, but I think everyone might have their price. I've got mine, and yes, sure, would I sign away all my IP created during employment for $x? yes, but no one has yet come close to that $x in job offers I get.


Employment contracts are almost always written to supply as many benefits to the employer and mitigate as many risks as possible.

The worst case scenario for them is that they find out that certain clauses are not enforceable. In reality I imagine it is often known that some may be unenforceable but they are added anyway on the basis that the employee doesn't know this.


One of the few things I've learned over the last 10 years or so is to be much bolder in work/job relationships. If I see something in a contract that is too one-sided, I strike it out and bring it up and say "I'm not agreeing to that". Will I sign a contract with, say, a 5 year non-compete (even assuming the non-compete is enforceable)? Generally no, unless there's a huge compensation package tied to make up for the time when I can't use my knowledge in the market. Would I sign one with a 3-6 month non-compete? Probably.

15 years ago I'd sign anything. Today, not so much.


This is true, many people don't realise that contract terms are technically negotiable in the same way that salary and things are.


In GA the constitution USED to be written such that unenforceable contracts, especially unenforceable employment contracts, were void in their entirety.

They sadly passed an amendment to remove that :O(


Is GA something to do with a US state?

Please spell these things out in full. It's only a few extra characters and it helps the rest of us pretend this site is global.


Spelling it out does not disambiguate it, as there is a country named that as well.

GA is oddly enough likely more specific, even if harder to decode, than Georgia. The country is abbreviated GE.


You are correct sir, GA is the 2-letter abbreviation for the state of Georgia.


I think that any funny clauses in the contracts should be abolished and the worker/employer relations should only be regulated by law.

This makes me pro-regulation and anti-market, but unfortunately I see exactly zero ways in which market can make contracts better. What are you expected to do in this situation - quit?


Collective bargaining rights was developed to counter exactly this power imbalance with minimum government involvement. Unfortunately I'm not aware of any programmer unions.


What's odd to me is that in many cases people who purport to be "pro free market" are also anti-union. As far as I can see, unions are the free market.


Unions in the US always have specific views that employees often don't share. Everything is about retirement, preservation of existing employees, and supporting other unions.

The problem is that most tech workers want incompetent workers fired, since they make other workers lives more difficult. The field also moves fast enough that credentialization is not particularly helpful. In fact, it can be harmful.

Unions would call for rules like "10% of new projects must be in COBOL" to help older workers that don't want to re-train.

German style unions aren't as opposed to guaranteeing worker performance, I'm not really sure why. That might fly, but keeping it German style would be difficult.

The other option is something along the lines of the WGA/SAG. But individual developers are treated well enough that that isn't seen as worthwhile.

Also there are the problems unions have with corrupt elections and organized crime.

My point is that unions are a mixed bag, and for many tech workers they're a bad deal.


Sure, but my point is that a die hard free market advocate should either disagree with what you just said, or swallow that hard pill and say that the problems with unions are just a necessary evil. Instead, many seem to be vehemently anti-union while still holding to a "the free market will solve everything" point of view.

I'm not saying that unions are perfect. I'm saying that it's inconsistent to admit that they can be problematic while still holding that the free market is the ideal.


You should be careful imputing views to others, then criticizing them, it's easy to miss nuances, then jump on the nuances you missed. For instance, here's a consistent view: "Unions can be forces for good but the government has gone too far in empowering them, creating a monster." I live in Michigan, a state that, no matter how much unions would love to deny it, has been badly damaged by them.

I'm a libertarian, and I support the existence of unions... but I also support the existence of Right to Work laws. A union should have to work to justify itself to its members, not be empowered by law to collect funds from individuals who do not wish to be in the union. Unions should be shielded from punitive violence by their employers... which I wouldn't even see fit to mention except that history says it needs to be mentioned... but if the employer can "just" hire replacements then the simple truth is that the union is negotiating itself right out of its market, and it needs to be forced to face up to that, not hide behind the government.

Unions are part of the free market, and should remain part of the free market. They should come and go as companies do, and the very fact that so many are The Union for their industry and that the same unions are nearly-permanent fixtures of the landscape is significant evidence that they are themselves artificially-created government monopolies, and I view them with the same suspicion I would any other government-created monopoly.


I don't see that as inconsistent at all. Why can't you be pro-free-market and anti-union? You can agree with the concept of a free market, but disagree with how unions currently operate. You appear to be confusing "I hate how unions tend to behave" with "I think unions should be forbidden".

I think unions can do great things to protect the workers they represent, but I hate that many (most?) of them seem more focused on things like retirement benefits and policies that have the effect of making it difficult to impossible to fire bad employees.


> You can agree with the concept of a free market, but disagree with how unions currently operate.

You can do, but die-hard free market types only ever seem to disagree with how unions currently operate, not how corporations currently operate.


I'm pro free market, and against unions, just as I am against fascist political parties. One could analogously say 'the choice to vote oneself into serfdom is the ultimate freedom' - this is the age old 'problem' with freedom, and while I acknowledge that it's a paradox in the ideology of freedom, I also find it hardly ever a problem in practice. Just as with unions, since they invariably turn into choice- and freedom-restricting guild-like entities.


Meeeehhhhh... I'd join a tech union that allowed me to participate in bargaining over working conditions and benefits. I've seen a surprising number of companies (coughAmazoncough) that pay very high base salaries and nice bonuses but completely crap out on health insurance, pension/retirement account, vacation time, work hours, etc.


What is wrong with employment benefits at Amazon, and besides the 'work hard'. ethic?


Only two weeks of vacation, no free food, etc.


I've thought that too. The difference seems to be that in general, an entire workforce in a company is either 'union' or 'non-union'. In places I've worked in that had unions, you didn't have a choice as to whether you wanted to join or not - you want the job, you join the union. At the macro-level, perhaps 'the market' for labor has said "union", but the choice is not there for the individual to join or not.

I took at job in a grocery store where the union was on strike - the only reason I didn't have to join the union was because they were striking and I was working directly for the corporate HQ. Pay wasn't bad, though I suspect they were having to pay more to get us scabs to come in through the picket lines :)

I'd prefer union places where you could elect to join the union or not. If they actually lobbied for better conditions for union members, and got those, there'd be more incentive to join - you'd be making the union mgrs work for their jobs, essentially.


The concept you're talking about is the so-called "right-to-work law" (http://en.wikipedia.org/wiki/Right-to-work_law). The problem seems to be exactly what jiggy mentions: it's much cheaper not to join the union, and you still enjoy at least some of the benefits of the collective bargaining. The reality seems to be that right-to-work states have weaker unions, lower pay, and lousier benefits than non-right-to-work states. Whether this is directly related to right-to-work laws or not is not entirely clear, but there's no evidence to suggest that right-to-work actually makes unions stronger or better for their members.

In terms of "making the union managers work for their jobs," is that really a problem right now? I haven't often heard arguments suggesting unions are just collecting dues and doing nothing. Generally the only anti-union argument I've heard is that unions are too powerful and their members have overly generous compensation.


In places I've worked in that had unions, you didn't have a choice as to whether you wanted to join or not - you want the job, you join the union.

Huh. Those sort of closed shops are illegal in the European Union, and have been for years, your right to join a trade union must mean you have the right to not join a union. Needless to say, unions and socialists in EU were not so happy with that.

It's weird to think that part of the USA have more union friendly than the EU


I guess the problem here is that from a purely selfish point of view it is better to not join the union (thus saving dues money) and let other people pay the union to negotiate on your behalf.

Perhaps it would be possible for an employer to offer separate union and non-union contracts with different pay rates (employers can already sort of do this by outsourcing) but the issue here is that not all union issues are about contracts.

For example , a union might negotiate for a factory to provide extra safety measures at the employers cost. All employees union or not would get the advantages provided by this unless the employer provided separate more dangerous machines for the non union workers to use.


While it's not a position I hold myself, I imagine such people would argue that unions are not the free market because of the legal protections and privileges they enjoy.

I'm no expert, but I know that in at least some jurisdictions a union-endorsed strike carries protections against worker dismissal.


It's odd for you to point out one of the legal protections unions have without also pointing out the things they are prohibited from doing, such as sympathy strikes, mass picketing, and (in some states) the ability to require a union shop.

And the law gives company owners protection against personal liability, and taxes companies different from personal income, while it also prohibits employers from having an unsafe workplace, child labor, and practicing various types of discrimination.

We are far from a free market. I agree with the earlier poster - I think a free market enthusiast should also want unions.


A union: some sellers of labor merge into a single legal entity, and it becomes illegal for some purchasers of labor to buy from alternate suppliers. To translate to another field: Apple and MS merge, and now consumers can't use Linux.

Laws enforcing a requirement to purchase from a cartel are about as far from a free market as you can get.

Saying free market supporters should favor unionization is like saying free market supporters should oppose net neutrality. In a free market, net neutrality is certainly something to oppose, but in the world we live in it's necessary to counteract the government granted duopoly held by Verizon/Cable.


At issue is the part "laws enforcing a requirement."

I'm hard pressed to think of any advocate of a free market who wants this law in place.

But a closed shop arose not from legal statute but by an agreement between the company and the union. There's no need for government involvement, except to settle contract disagreement.

In fact, it's quite the opposite! Closed shops are illegal in the US, under Taft-Hartley Act, though they are legal in some other countries. Union shops are legal, except where the states have prohibited that practice.

The question to the audience is, shouldn't a free market advocate want to reduce both the laws which give unions specific power AND those which take power away from unions?

If your concern is about monopoly powers, well, 1) that's a restriction of free trade, so our hypothetical free market advocate might not want those restrictions either, and 2) why aren't they regulated under anti-monopoly laws, rather than specific anti-union laws?

As to the net neutrality issue, well, that's a mixture of morality and an abuse of monopoly power. I believe you're only focusing on the latter issue for now. (And I think our government is and has been entirely too closely intertwined with business, and especially big business, for too long, which has allowed these abuses to grow.)

Is an employer a sort of monopolist? I believe they are. While there are exceptions (IT in the Bay Area during the dot-com era being an obvious one), for many people it is not easy to quit and easily find new employment. Otherwise Nevada wouldn't have a 10% unemployment rate. The problem with monopolies though isn't that they are monopolies, but that they can abuse their monopoly power.

You rightly pointed out that unions can abuse their monopoly power. But so too can companies.

So the modified question to the audience is: shouldn't a free market advocate want to reduce both the laws which give unions specific power AND which take power away from unions, so long as there is no abuse of the monopoly power?

Unfortunately, the easy answer by an anti-union person is that unions are, by definition, an abuse of monopoly power, so this question has no real utility. And I can't come up with a better phrasing.


The question to the audience is, shouldn't a free market advocate want to reduce both the laws which give unions specific power AND those which take power away from unions?

Yes. I'd love to scrap all laws relating to unions and have the law treat them as worker-owned consulting companies.

Is an employer a sort of monopolist? I believe they are. While there are exceptions (IT in the Bay Area during the dot-com era being an obvious one), for many people it is not easy to quit and easily find new employment. Otherwise Nevada wouldn't have a 10% unemployment rate.

Can you explain this claim? What prevents any employee from leaving and selling their labor to another willing party?

Many people find it difficult to leave and find higher paying work, but that just means their current employer is paying them at or above market [1].

Unemployment is (according to Keynesians at least) a mismatch between employee's desired wages and market wages. It has nothing to do with monopoly power. A simple way to test this - is unemployment higher in sectors with a smaller number of firms?

[1] A common reason for this is the accumulation of firm-specific knowledge. That is to say, an employee's value to the employer is X+Y, where X is general knowledge (useful to all employers) and Y is useful only to the current employer. I.e., X is general programming, Y is knowledge of a specific legacy system. This is a situation with both a monopoly and a monopsony - the employer can't find outside employees with legacy system knowledge and the employee can't find outside employers with that specific legacy system.


"worker-owned consulting companies"

There are many organizational forms. I wouldn't choose a company. It should be a cooperative, as described at http://www.sba.gov/content/cooperative . "Not all cooperatives are incorporated, though many choose to do so." And "Democracy is a defining element of cooperatives. The democratic structure of a cooperative ensures that it serves its members' needs."

"Can you explain this claim? What prevents any employee from leaving and selling their labor to another willing party?"

Sure. You mentioned Keynesians. Quoting the Wikipedia section about cyclical/Keynesian unemployment: "With cyclical unemployment, the number of unemployed workers exceeds the number of job vacancies, so that even if full employment were attained and all open jobs were filled, some workers would still remain unemployed."

In that scenario, there are few willing parties to sell one's labor to. How is that not structurally similar to a monopoly? An employer in that situation can abuse their monopoly power, and take advantage that the switching costs for the employee to get another job are so high. In short "you take a 5% cut in pay or I fire you and hire the next person who walks in that door." It doesn't even need to be said: "you will take a 5% cut in pay" implies "or you'll have to quit and find another job."

We don't need to be in a Great Depression for that to happen. Or do you think the 2009-2010 spike to 14% unemployment rate for Michigan was all due to people deciding to stay unemployed while holding out for higher paying work?

Using a similar calculus to your model, the switching cost for an employee includes [1] the difficulty of finding a nearby job, or moving and feeling uprooted (and finding new schools, new job for the spouse, etc.), [2] potentially being called a 'complainer' or 'quitter' or labeled 'unable to handle heat' by members of the community or black-balled by industry, [3] the lost wages/opportunity cost between quitting one job and starting the next, [4] the basic stress of having to get up to speed with a new job, meeting new people, and understanding the new social environment, [5] the emotional impact of looking for a job and getting a bunch of 'no's (My Mom got her EE degree, as a 50 year old woman, and tried looking for a job. The many 'no's she got became quite discouraging. People may stay with a job, with its external torments, than deal with the internal.)

You may object, and saying that if a person stays after a 5% pay cut then it shows that the job was priced above market rates. However, I would consider that practice an abuse of monopoly power.

Further, there's a Gambler's ruin issue to quitting, with the employer taking the role of the casino. It might be that a person has a job lined up, moves across the country, only to find that the position is soon no longer there. If that person's unlucky (as what happened with my Dad when I was little), then that could happen twice in a year. (We moved in with his parents for a few years while my parents built up savings again.)

When someone quits, they take the admittedly small chance that they may end up sleeping in a car or other situation drastically worse than what they would had had, should they stayed. While the likelihood that the employer will have correspondingly large negative impact when an non-key employee quits is significantly, even laughably, smaller.

This too makes the employer/employee relationship more unbalanced, and so open to abuse by the side of the employer.


First of all, your selective quote deeply misrepresents Keynesian economics. I suggest you go educate yourself in more detail on the theory.

Or do you think the 2009-2010 spike to 14% unemployment rate for Michigan was all due to people deciding to stay unemployed while holding out for higher paying work?

Nominal wages have increased during the recession. If employees were willing to take a pay cut to become employed, that shouldn't have happened.

http://research.stlouisfed.org/fred2/series/ECIWAG

http://research.stlouisfed.org/fred2/series/ECICOM

I'm not actually a Keynesian myself - I tend to subscribe to recalculation theories for this particular recession, though I definitely believe sticky nominal wages definitely play a role. But I appeal to Keynesian theories in this discussion since many union supporters tend to profess support for Keynesian economics (while oddly supporting institutions which create wage stickiness).

An employer in that situation can abuse their monopoly power, and take advantage that the switching costs for the employee to get another job are so high.

Your theory yields no reason an employee can't do the same thing. Replacing a worker also involves transaction costs, and rather high ones (look at the price of a recruiter).

Once a person is hired, there are switching costs on both sides. You have yet to demonstrate any structural difference between them.


My understanding is altogether biased towards the personal and emotional. I am influenced by the ideas behind "Gross National Happiness" and similar harder-to-quantify measures. I've read first person accounts of people during the Great Depression. (Eg, Studs Turkel's "Hard Times"). There were no jobs for some people. Any analysis which says "Unemployment is .. a mismatch between employee's desired wages and market wages" must be wrong, or at least simplified, because it assumes either that there is a market for jobs, or that the market wages are enough for basic survival.

For "basic survival" I mean "under our cultural expectations." I don't want the US to be 80% Hoovervilles, even if that does get us to near full employment. That's the extreme conclusion, but is it not fully justified by that simplified analysis?

I am quite of the view that we should first decide what we want to get from our economy, and adjust the market rules to improve the changes of reaching that goal and to minimize the changes of catastrophe.

My observation is that people want security, expressed monetarily as reduced personal or family risk. Sticky wages reduce risk. Health insurance reduces risk. Protection from capricious management decisions reduces risk. Higher wages reduce risk by being able to build up a larger savings, though in practice few do that so this isn't all that secure. I believe the risk issue here is analogous to the Gamblers Ruin, in that people with low income and low savings are more at risk to statistical fluctuations which can expose them to greatly reduced living conditions.

Then, as a moral question, how do we use Keynesian economics (or any other economics model) to reduce the risk? We can have legal systems to review contract violations, we can have wage freezes (both up and down), we can have increased worker protections, etc.

Okay, so the Keynesian model says that this increases unemployment. So what? One response is that we shouldn't have these restraints on the market. Another response is that we have increased government support, to minimize the sharp edges of being unemployed. A third is that we look to the churches, or other NGOs, to provide the social safety net, and a fourth is to look toward unions or unemployment insurance. A fifth says to look towards extended families and friends.

The Keynesian model says nothing about the morality of the choice. It only suggests the likely consequences.

"Your theory yields no reason an employee can't do the same thing."

I didn't say they couldn't. I was elaborating on why an employee couldn't easily quit and move to another job. Stories abound about people using their employment position to get special perks. I got basement parking for one job, with the management cars, rather than parking with the rest of the employees in the lot 3 blocks away because I complained and because I wasn't trivially replaceable. Then again, I complained because management decided to move the company to a place further from where I lived, and I had no part in that decision. So it's a complicated issue.

But my theory says that I have less power over the company than they have over me, because I am closer to living out of my car, should my personal decision to quit prove disastrous, than the company is in going bankrupt because they decided to fire me.


Any analysis which says "Unemployment is .. a mismatch between employee's desired wages and market wages" must be wrong, or at least simplified, because it assumes either that there is a market for jobs, or that the market wages are enough for basic survival.

Agreed. As I said, I'm not a Keynesian. I'm glad you agree that monetary and fiscal stimulus will often be ineffective.

If employees want to reduce risk, why would they want sticky wages? Sticky wages increase risk of having your wage cut to $0.

I'm also curious - you acknowledge that given higher wages, employees choose to spend the money on consumer goods rather than mitigating their risk. Why would they do this if risk reduction is their primary goal? It seems as if you are incorrect about what people actually want.

But my theory says that I have less power over the company than they have over me, because I am closer to living out of my car, should my personal decision to quit prove disastrous, than the company is in going bankrupt because they decided to fire me.

This is true, but irrelevant. To determine "market power" in any model I've seen, the correct comparison is dollar amounts on both sides.

Also, your point about transaction costs does show that there is wiggle room (for both employees and employers) on wages/benefits. That's a far cry from monopsony or anything even remotely close. Perhaps you can clarify your position - how large (in $) do you think transaction costs of changing jobs actually is?


> I'm glad you agree that monetary and fiscal stimulus will often be ineffective.

I never said that. Obviously a stimulus of $100 will be ineffective, but you can draw no conclusion about "often" (or "rarely") from what I wrote.

> Sticky wages increase risk of having your wage cut to $0.

Based on the research I did yesterday, and described in http://news.ycombinator.com/item?id=4963624 , "In a baseline New Keynesian model, labor market frictions render real wage rigidity potentially irrelevant for the dynamics of inflation." and "The mechanism emphasized by Hall (2005) and Shimer (2005) that helps the search and matching model fit the facts, appears to have a neutralizing effect in sticky price models."

The search and matching model is the one I hand-waved here. Inflation isn't the same as unemployment, so this quote isn't directly transferable. But it seems that wage stickiness or lack thereof doesn't have as much effect on the economy. Instead, it increases the volatility of hiring and job creation costs.

I referenced the paper of Krausea and Lubikb, http://www.tau.ac.il/~yashiv/kl_jme2007.pdf . It includes a term for what I've been saying is a cultural morality to have sticky wages. "We employ a version of Hall’s (2005) notion of a wage norm to introduce real wage rigidity. A wage norm may arise from social convention that constrains wage adjustment for existing and newly hired workers."

> employees choose to spend the money on consumer goods rather than mitigating their risk

Because people don't make fully rational economic decisions. You might as well ask why so many people smoke, even with the knowledge of how it affects their health, or ask why I've stopped exercising despite knowing its positive benefits. Why did the banks make so many subprime mortgages? Why did so many people agree to them even with high chances of not being able to pay?

If you want, I think you can model things like "I really wanted a new computer" as a random external event akin to an unexpected medical problem or broken plumbing, and bring the analysis back into the rational hypothesis.

> To determine "market power" in any model I've seen, ...

Really? The Krausea and Lubikb paper says "The parameters describing the household are standard. We choose a coefficient of relative risk aversion σ = 2." A constant relative risk aversion implies a decreasing absolute risk aversion, so the more money one has the more willing one is to take risks.

This makes it sound like many economic models - or at least those based on the search and matching model - include risk taking as part of the analysis. Can you square my observation with your statement? Perhaps it's because their model isn't used to determine market power per se?

> your point about transaction costs does show that there is wiggle room

I'm afraid I've lost the point of this thread. I say that employment can be viewed as a monopoly, and more importantly, that an employer can abuse those monopoly powers. And yes, an employee, and especially a union of employees, can be viewed as a monopoly and also abuse its monopoly powers.

You do not believe this is the correct analysis, and you believe that the various economic models back you up.

Do these quotes help show that economist have considered my hand-waving models in much more depth?

- There are search-and-matching frictions in every sector and firms post vacancies in order to attract workers. The cost of posting vacancies and the matching process generate hiring costs. Moreover, search-and-matching frictions generate bilateral monopoly power between a worker and his firm, as a result of which they engage in wage bargaining. -- http://restud.oxfordjournals.org/content/77/3/1100.full

- A specific class of models argues that wage rigidity might arise in the context of risk- averse workers and risk-neutral firms. In a seminal contribution, Thomas and Worrall (1988) develop a model with self-enforcing wage contracts whereby risk-neutral firms provide insurance to risk-averse workers. In their model agents cannot commit, but contacts are nevertheless self-enforcing due to an extreme reputation assumption, ac- cording to which an agent who reneges on a contract is forced to trade on the spot market forever after. Efficient contracts are contained in a certain interval and when- ever the wage leaves this interval, the agents update the wage by the smallest possible change that puts the wage back into the interval (i.e., on the bounds of the interval). Rudanko (2009) embeds this kind of model into an equilibrium model of directed search with aggregate shocks. In her model a constant wage emerges if both agents can fully commit, in which case the risk-neutral firms provide insurance to risk averse workers through optimal long-term wage contracting. In contrast to Hall (2005), her micro- founded model of perfect wage rigidity does not lead to a substantial increase in the cyclical volatility of unemployment. -- http://www.econ.upf.edu/eng/graduates/gpem/jm/pdf/paper/Pape...

The description model of Rudanko sounds like your statement - that wage rigidity leads to increased unemployment during recessions - isn't necessarily true.

Quoting from her site at https://sites.google.com/site/leenarudanko/ : In this paper I develop a tractable extension of a Mortensen-Pissarides style matching model that allows for risk averse workers with limited ability to smooth consumption. I show that this leads to a form of equilibrium wage rigidity. This rigidity arises because the inability of workers to smooth their consumption across unemployment and employment spells changes how unemployed workers value wage offers, and hence also the offers that employers find profitable to make.

Aren't these quotes in opposition to what you've been describing, and more in line with the ideas I've described here?

That's not saying that the model is right, or that I'm right, only that there are economic models which agree with my views, so my views are not outright rejected by economic theory, while you think they are.


I only saw this comment today, after you referred to it in another one. Yesterday was Christmas, after all.

I'm afraid I've lost the point of this thread. I say that employment can be viewed as a monopoly, and more importantly, that an employer can abuse those monopoly powers.

The standard model says this is correct within the transaction cost interval. I agree with this model, which is why I asked you: "how large (in $) do you think transaction costs of changing jobs actually is?"

I.e., if the transaction costs are $3k, monopsony/monopoly models might explain why someone's wage is $51k vs $53k, but they don't explain why it is $50k vs $25k.

I disagreed that your examples of Hostess/etc were related to this model, since the price changes there were far larger than any reasonable transaction cost I could think of.

Near as I can tell, Rudanko isn't doing anything different from this.

Also, you were correct that I should have said risk-adjusted dollar costs should be used to determine market power. Note, however, that risk-adjusted dollars are not the same thing as P(bankruptcy), which you seem to be using.

To conclude, I think your parameter choices are wildly off (e.g., to make your ideas work, I think you need transaction costs proportional to wages). I strongly recommend actually writing down your models (with numbers and math) to clarify your views.


"how large (in $) do you think transaction costs of changing jobs actually is?"

I am unable to calculate that, nor provide a good estimate. People do strange things for love. Does it always make economic sense? No.

What is the transaction cost of forcing your kids to leave school and boy/girlfriends if the job change requires moving? What is the transaction cost of asking your husband to quit his job and leave the church where he's been a deacon for the last 10 years? I once talked with someone who loves the sea, and couldn't think of leaving away from it. What's the transaction cost, were she your wife, to move her to a better paying job in Oklahoma? Does that include the costs of divorce, should she find that she loves the sea more than you?

What is the economic cost of being considered a "failure" and a "quitter", or "not a team player" by your neighbors and ex-coworkers? Of being disowned by your family for switching from Jehovah's Witness to Southern Baptist? Of being the sole outspoken atheist in a small Bible Belt town?

These can be estimated, certainly, but those estimates feel like post hoc parameter fitting. "If person X won't switch to another job which pays $3k more, then the price on staying is worth at least $3k." With enough parameters you can fit anything.

Can you tell how the various economic models include these factors into the cost model? How do they estimate these various costs I've outlined?

Going into semi-obscure New Mexico history, in the 1950s the 82-year-old John Prather was offered $200,000 for his mule ranch in southern NM, so that White Sands Missile Range could be expanded. The price was well above the going rate for the land, but he was the last hold-out. He was one of the last of the US pioneers to the American West, and he wasn't going to leave. Period. He would rather die in a gunfight than move.

Americans liked the romantic idea of one of the last pioneers still living the old ways, which put pressure on the Army and the police to not force the issue. They gave up, and Prather stayed there until he died.

What would you say is the transaction cost for him to move? Obviously staying there was worth more than $200,000 to him. Was it $5,000,000? Was there any amount of sum which would have gotten him to move? If no such number exists, then can you even use an economic model for this event?

BTW, in our other thread I asked this of you: do monopolies (or cartels, for that matter) ever abuse their monopoly (or oligopoly) powers? If so, do you use moral guidelines to determine what constitutes abuse?


> In short "you take a 5% cut in pay or I fire you and hire > the next person who walks in that door." It doesn't even > need to be said: "you will take a 5% cut in pay" implies "or > you'll have to quit and find another job."

In practice this almost never happens. Employers are very reluctant to cut nominal wages, even if they could afford to hire more workers that way and get a more economically efficient outcome. This phenomenon is called "sticky wages" and is believed to be a significant cause of unemployment in recessions.

In summary, the relationship between unemployment and labor pricing power is believed, by many economists (most notably Keynsians but also e.g. market monetarists) to be about the opposite of what you said - stickiness of wages causes greater unemployment, rather than unemployment causing downward pressure on wages.


"In practice this almost never happens"

I was using that as an example. It could be "work fewer hours", "reduce health care", "have no chance for promotion", "laid off" or other things where the employer has control over an employee's future.

However, as to "almost never happens", here are some recent examples:

- In the recent Hostess/Twinkie news, "Though he imposed an 8 percent pay cut for all Hostess workers, Gregory Rayburn’s monthly $125,000 pay — or $1.5 million a year — will remain unchanged" http://thinkprogress.org/economy/2012/12/04/1278131/hostess-...

- An undated article but likely from 2008 (not recent, but I wanted the last quote): "The company will slash executive compensation up to 50%, cut many employees' pay as much as 15% and offer voluntary buyouts to its 25,000 workers.", "Ohio-based AK Steel, aks for instance, said on Dec. 3 it would implement an indefinite 5% pay cut for salaried workers, including the CEO and executive officers. ", ... ""It's not common, but in each recession it seems to be picking up speed … as proactive employers figure out that it's very expensive to lay people off and then go back and hire them," Lingle says." ( http://abcnews.go.com/Business/story?id=6514494&page=1#.... )

- more about the steel industry: "the world's largest steelmaker and among the largest in the U.S., has told the union it wants to cut wages and benefits for all workers by more than $28 an hour, or 36%, from an average $77.40 in 2011 and eliminate retiree health care for anyone hired after Sept. 1. The steelmaker also wants the "unilateral right" to cut wages during periods of reduced operations and to schedule 32-hour work weeks." http://online.wsj.com/article/SB1000087239639044409790457753...

- (Ireland, 2012): "The Labour Court has recommended that construction workers should accept a pay cut of 2.5%. It comes on top of a 7.5% pay cut introduced some years ago.". I believe the pay cuts would have occurred earlier had the unions not been involved, but that's conjecture.

- 2012: "Scranton, Pa., slashes workers' pay to minimum wage" and in defiance of a judge's order: http://www.nbcnews.com/business/scranton-pa-slashes-workers-... .

- 2012: "Muskegon school employees take pay cut to save their jobs", http://www.mlive.com/news/muskegon/index.ssf/2012/10/muskego...

- 2012: "Madawaska School Committee backs off teacher pay cut decision". The school board decided to make the cuts, then "general counsel warning that the proposal could “constitute an unlawful refusal to bargain in good faith” and open the school department up to litigation" caused the board to reverse their decision.

- 2012: a first account of how the person adjusted to a spending cut: http://finance.yahoo.com/news/first-person-pay-cut-taught-pe...

- 2012: "Detroit police see pay cut in checks despite judge's order" http://www.freep.com/article/20120826/NEWS01/120826033/Detro...

I think this is enough to establish that, while uncommon, it is no hen's tooth.

My thesis is that some employers can be viewed as a monopoly provider of jobs. But monopolies in and of themselves are not a problem - it's the abuse of monopoly powers which is the problem.

"Abuse" is almost by definition a question of morality, not of economics. It may be better for the economy (more prosperous, shorter recessions, or some other measure) should we once again allow child labor. Indeed, I've heard more than one person argue that a reason for banning child labor was to raise wages for adults by introducing a shortage of workers. But the bans stay because of moral reasons, and we export our morality to other countries when we demand that our clothes and other items not be made with child labor. Even if the economics of that country would be better with more local child labor.

The morality comes into play here because part of the reason people work for a company is to reduce personal economic risk. As a consultant, my income is highly variable, and it's stressful when that income is low. Even when my income is high, I can't make the same economic decisions as someone who is salaried and with the same monthly salary as my average, because of the Gambler's Ruin issue I mentioned. There can be and have been times when my savings became quite low, and I was seriously considering getting a salaried job. While now, my income is quite above my average.

A salaried job is an exchange of services for money. The general expectations are given in the contract, the law, and the general culture. One of the employee expectations is that the salary will generally be stable, and it will be more stable for government jobs than at a company. People will go into civil service for that increased (perceived) stability, even though it doesn't pay as well.

But unlike, say, overtime pay, this stability is not usually part of the contract nor (in the US) the law. A company can unilaterally decide to cut wages and/or benefits on employees. I've shown examples where that has happened this year. The abuse comes in when companies start breaking both the explicit and implicit promises which are part of the employer/employee relationship. If pay cuts becomes more frequent, then there will be increasing outrage, and the implied stability will be made explicit in either the law, or the contract, ... or people will accept that they have no control over their month-to-month wages. I think the latter is bad for us as a culture.

You and the economists may be perfectly correct in saying that "stickiness of wages causes greater unemployment." What action should be taken from that observation? Should there be laws which prevent stability clauses in a contract, in order to reduce unemployment levels? Or should there be a basic stipend so people can be unemployed for longer while they search for a job with higher stability levels?

This thread started in part because of an observation that in many places in the US there is a broadband duopoly with AT&T and Comcast. In and of itself, this is okay, so long as they don't abuse those power. The recent "Data Caps Help Carriers Rake In Huge Profits" (e.g., http://techcrunch.com/2012/12/19/report-data-caps-help-carri... ) gives an example of what I would call an abuse of that duopoly power.

I've carefully said "broadband duopoly." There are other ways to get access to the internet, including some 3 million people who use dial-up for AOL. Monopoly law is careful about defining a market before looking to see if there is an abuse of monopoly powers.

I assert also that employment should also be subject to a similar market segmentation analysis. If there's only one factory in town, paying $45/hour, and the other jobs are retail and fast-food paying $10/hour, then those are different employment markets. Yes, someone could quit the factory and start working at the DQ, but someone could also quit with AT&T and switch to AOL dial-up. The local factory has a monopoly on high-paying jobs for the area, and can (and does!) use that market advantage.

My thesis is that the same analysis used to identify monopoly abuse in the market should also be used to identify monopoly abuse in employment relationships. No, employers aren't necessarily monopolies, nor do they necessarily abuse their monopoly if they have one. But I think the parallels between monopoly abuse and unilateral change of employment conditions are close enough that the former has bearing on the latter.


The fact that wage cuts occur does not prove your case about using transaction costs to cause wage cuts occur. They appear to simply be cases of market rates dropping, in most cases due to a decrease in demand for labor.

This has nothing whatsoever to do with monopsony buying power - there is nothing preventing Hostess employees from finding alternate employment except the fact that Hostess still pays them more than their next best alternative.

If your theories about employer monopsony power had any relation to the real world, then we would simply not observe wage stickiness.

Your claims about a monopsony on "high paying jobs" is also nonsensical - by this logic, walmart has a monopoly on "low priced goods". You are conflating price point with category of good, which is incorrect.

Now, you might have an argument if you actually want to discuss specific specialized jobs - e.g., statin chemist or algebraic topologist. An argument about monopsony power might actually apply here. But applying it to drivers, machine operators and burger flippers is silly.

Besides, if Hostess cuts wages from $40 to $10 and gives up their monopsony power, isn't that a good thing? By definition, they no longer have the ability to abuse their monopsony.


othermaciej wrote that "In practice this almost never happens". My response was to shows examples where it does happen in practice and so my simple example could not be rejected out of hand. I don't know what "almost never" means for this context. In practice, companies almost never forget to pay overtime to salaried workers. Companies almost never hire child labor. Both are illegal, even though they almost never happen.

"there is nothing preventing Hostess employees from finding alternate employment except the fact that Hostess still pays them more than their next best alternative"

And your point is that it's moral for Hostess to keep cutting wages until people start leaving for other positions?

My argument is all about morality, not economics. How morality is carried out must acknowledge the economics, but economics does not dictate the morality. I argue that there is a cultural expectation that salaries will rarely decrease, and that expectation is part of the cultural morality. The culture expectation exists, because people get a job in part to reduce risk. Otherwise we would all be contractors, and demand a higher income in order to handle the higher risk exposure. But there's a cultural difference in what it means to be an employee and what it means to be a contractor. Perhaps the distinction is that employees also trade loyalty for security, where contractors only trade services for money. I've not thought so deeply about that distinction.

"If your theories about employer monopsony power had any relation to the real world, then we would simply not observe wage stickiness."

You cannot make the observation "we would simply not observe wage stickiness" and conclude there is a lack of employer monopsony power. You have to show that there are no other reasons which can counteract that effect it, even in the face of monopsony.

Other factors may dominate. As an example, suppose a commandment in the Bible were 'employers shall not reduce the wages of their employees.' If the owners of a company followed Christian principles as well as legal ones then you would still observe wage stickiness, despite the lack of a law to that effect. Even if the employees were all non-Christian and don't care about that law per se, and wouldn't protest if the employer didn't follow that religious law.

As a more real-world example, you can't look at Chik-Fil-A and conclude that there's no market for fast-food chicken on Sundays, or that people won't work on Sundays for fast-food chicken stores.

Researching this now, I am expressing basic aspects of the search and matching model. "Jobs in the Search and Matching model are characterized by monopoly rents, due to the matching frictions that give rise to search costs and unemployment," says http://personal.lse.ac.uk/pissarid/papers/WB_ECMA.pdf .

I see that my morality issue is described as a "wage norm" in http://www.tau.ac.il/~yashiv/kl_jme2007.pdf , starting with "We employ a version of Hall’s (2005) notion of a wage norm to introduce real wage rigidity. A wage norm may arise from social convention that constrains wage adjustment for existing and newly hired workers."

I tried to understand their conclusion. It starts off "In a baseline New Keynesian model, labor market frictions render real wage rigidity potentially irrelevant for the dynamics of inflation." and continues "As one component of real marginal costs, wages, becomes less volatile, the other component, hiring and job creation costs, becomes more volatile. The mechanism emphasized by Hall (2005) and Shimer (2005) that helps the search and matching model fit the facts, appears to have a neutralizing effect in sticky price models."

I read the first part as saying that the baseline New Keynesian model isn't affected by real rage rigidity (but you disagree and say it is, correct?) If my interpretation is correct, then this is an area where non-market forces, like wage norms, can be a stronger influence because they don't directly affect the success or failure of the company.

I read the second as saying that the main effect of wage rigidity is the volatility in hiring and job creation costs. How either the dynamics of inflation or the volatility of hiring and job creation costs affects the unemployment level is beyond my understanding, but from what I understand of the paper suggests that what you see as clear evidence - wage stickiness - does not necessarily imply a lack of monopoly.

"But applying it to drivers, machine operators and burger flippers is silly."

I never said it applied to all employees. I say that employment is sometimes not fungible. You seem to both agree (as for an algebraic topologist) and disagree ("there is nothing preventing Hostess employees from finding alternate employment except the fact that Hostess still pays them more than their next best alternative").

When something isn't fungible, then its scarcity affects its price. You can hardly say that that's surprising. In that case, it's easy for an employer (or, yes, employee) to abuse the advantage. The employer's best alternative to giving in to a demand is to fire the person. The likelihood of the company going out of business while it finds a replacement is low. The employee's best alternative to giving in to a demand is to quit. The likelihood of the employee facing tight financial difficulties is higher.

"by this logic, walmart has a monopoly on "low priced goods""

Every time I've said "monopoly" in relation to jobs I've said that the issue is not monopoly but abusing monopoly power. Can you make the case that Walmart is both a monopoly and abuses its monopoly powers?

Microsoft faced monopoly charges not because it was the only supplier of Microsoft products, and primary supplier for the desktop OSes in the world, but because of claims that it abused its monopoly powers. I think the history of unions shows cases where companies have used abused their employment power, and I think the best model is to say that there is either a monopoly or cartel of employers which made that possible.

"if Hostess cuts wages from $40 to $10 and gives up their monopsony power, isn't that a good thing?"

No, because it's a risk management thing. People become employees partially to minimize long-term risk. Giving up their monopsony power (by going out of business) increases employee risk.

I'm fine with monopoly power so long as it isn't abused. I don't want to force a break-up of Microsoft just because they might abuse their monopoly power, because that breakup could be worse for the employer, the employees, and the customers.

A question for you is - do monopolies (or cartels, for that matter) ever abuse their monopoly (or oligopoly) powers? If so, do you use moral guidelines to determine what constitutes abuse?

I ask because I've talked to ardent free economy supporters who believe in no restrictions, not even to prevent monopoly abuse. Yes, even to the point of wanting to allow child labor and indentured servants. Because I believe we must use morality to guide where we want economics to take us, if you don't also believe in moral restraints on the market then this conversation will go nowhere.


Yes, "almost never" - it's rare enough that it makes the news when it happens.

The action that should be taken based on the fact that wage stickiness causes unemployment is at minimum to avoid making them more sticky, e.g. by regulating wage cuts as if they are "monopoly abuse".


This is a dishonest characterization of the law in most states re: unions.


Unions don't have a legally enforced monopoly on labor. They obtain a monopoly or oligopoly through market power.

The problem being that without unions, labor becomes subject to oligopsony buying power and Ricardo's Law of Rent kicks in.


They obtain a monopoly or oligopoly through market power.

So if a union lacks market power, an employer is legally free to fire the union employees and replace them with non-union employees at market wages?

The problem being that without unions, labor becomes subject to oligopsony buying power and Ricardo's Law of Rent kicks in.

Can you explain this claim? While it's certainly true in a few narrow fields (chemistry/biotech, various specialized corners of academia), it's hardly true in the economy at large. In what fields do you believe an oligopsony is present?


In any field in which there is a concentration of employers relative to employees. Which is to say: most of them.

Quoting from Wikipedia: "The Law of Rent states that the rent of a land site is equal to the economic advantage obtained by using the site in its most productive use, relative to the advantage obtained by using marginal (i.e., the best rent-free) land for the same purpose, given the same inputs of labor and capital."

Where "land" is taken as capital, equipment, and/or alternate business opportunities, the employee's wage-bargaining leverage, in the absence of collective bargaining, is what s/he could make by going elsewhere and starting up a new firm. Where no new business opportunities exist, wage bargaining falls to subsistence levels (employers will pay employees the bare necessities for staying alive).

In the economy at large, the situation still remains true. An employer need pay an employee no more than that employee could claim at another job (or by going into business for him or herself), given the employee's skillset.

Given that skills tend to wed to experience, should the employee transition to a different line of work (at which they are less skilled), unless there is a peculiarly high demand for that work, their wages will fall. Also, the employer's surplus (that is, productivity above wages) is governed by the Law of Rent.

Given collective bargaining, through the threat of withholding labor (with skills that, collectively, the employer would be hard-pressed to replace), a negotiation for total compensation (wages, hours, benefits) in which more of the employee's surplus is distributed to the employee may be arranged.


In any field in which there is a concentration of employers relative to employees. Which is to say: most of them.

This is true not just of the employment market, but of most goods markets. There are far more buyers of cars/computers/cheese than sellers. Does this mean that pizza producers have oligopoly selling power?

Your theory is too broad. It applies to virtually everything.

In the economy at large, the situation still remains true. An employer need pay an employee no more than that employee could claim at another job (or by going into business for him or herself), given the employee's skillset.

Conversely, an employee needs to accept as wages no less than the wage he could get from another employer. This is true of any market - a purchaser needs to pay no more than market price, and a buyer needs to sell for no less than market price.

All you are describing is market pricing. Are you claiming all markets are oligopolies or oligopsonies?


The distinction between employment and sellers markets is that an employee typically has a (mostly) exclusive relationship with a single employer, and relatively high switching costs (interviews, unemployment), particularly for more advanced / skilled professions.

A buyer usually has very low switching costs between merchants. That said, yes, there is a great deal of concentration in retail, especially as you go back up the supply chain. For electronics and other advanced goods, there is typically one or a very small set of manufacturers (at least at the component, if not the finished product scale), e.g.: Foxconn for laptops and mobile devices, a handful of disk drive and memory manufacturers, etc. For food, there's a huge level of concentration at the mid-market, through Monsanto, Tyson, Cargil, Con-Agra, etc., despite the huge number of individual food outlets.

While I don't claim that all markets are oligopolies/oligopsonies, a great many are (or exhibit a great deal of concentration, or of market distortions such as healthcare) including many of those comprising a large share of the US economy: health, finance and insurance, utilities, retail. Enough so that what we consider to be the conditions of a free market: economically small buyers and sellers with equivalent information and low switching costs meeting in an open marketplace, are actually met in only a small portion of the economy as a whole.


"A union: some sellers of labor merge into a single legal entity, and it becomes illegal for some purchasers of labor to buy from alternate suppliers."

I have seen references to this many times. Is this true in the States? I was once a teacher (not in the States) and did not have to sign up to any union. Apart from lawyers and medical personel and maybe a few other "special" professions you don't have to belong to a union to offer your services - at least here in the EU.


Yes. It is illegal for the employer to fire union workers and replace them with non-union workers. It is illegal to hire new workers at wages lower than the union wage, and in many states to even hire non-union workers.

Unionization is by employer, not by profession, though a few professions (e.g. managers) do lack the ability to gain legal protections by unionizing.


I don't necessarily disagree with the argument that a free market enthusiast should desire unions. I disagree that a free market enthusiast should desire unions in their current form, which we both agree is far from a free market.

In other words, I don't think it's unreasonable to say "Device X would be desirable in ideal situation Y, but as the current situation is far from ideal, device X currently does more harm than good".

And again, I don't necessarily personally believe that to be true of unions.


There's also a fair number of union workers who are not allowed to strike at all: http://en.wikipedia.org/wiki/Strike_action#In_the_United_Sta....


Unions have very little to do with free markets, and they typically do not actually benefit everyone in labor (they benefit some folks who are already in the union). Because of the way our labor laws work unions, in the instances where they are prevalent, tend to end up being a monopoly on labor for a given industry. This creates distortions in the market just as great as monopolies of capital. Also, unions tend to erode meritocratic systems of compensation and advancement and replace them with systems based on seniority and union membership, which tends to disadvantage the business, customers, and most workers except those few at the top of the seniority ladder.


  > unions tend to erode meritocratic systems of
  > compensation and advancement
If such meritocratic systems exist, the awards are only dependent on the merits of your corporate politicking skills.


Let's say you are a tech worker in silicon valley. Your wages and the sorts of jobs you have access to are dependent on the sorts of companies in existence, their needs, and your skillset. If you have a highly sought after skillset then you will be courted by multiple companies who will try to woo you with jobs that you find desirable and competitive compensation packages. Let's say instead you are a dock worker in long beach. In that case your compensation and career opportunities are far more dependent on your union membership and seniority.

Certainly playing corporate politics can also have an effect, depending on the company, but that's also true in union shops as well.


Very few unions have a mandatory favored nations policy. If you were significantly better at dock workering, such that a company sought you out, they can easily pay you more. That being said, many union labor positions don't have a wild variety of skillsets. They often do need protection.


Most people claiming to be "pro free market" still oppose cartels. A cartel is the banding together of multiple companies or parties in an agreement to work together to raise prices.

A union is a cartel. I don't mean that in as a normative statement. Unions may still be worth having, even if they are a cartel in that they workers band together to raise what they charge for their labor.

But, that is the logic by which many "free market" advocates oppose unions.


Unions are actually cartels.


Well, "pro free market" is usually (and silently) taken to mean "whatever benefit me as an employeer and screw the workers".

As in: "if I want to have people working 20 hours per day, with no overtime for less than minimum wage, I should be FREE to do so, and people are FREE not to work for me".

That's the kind of "FREE" the free market stands for usually.

Of course, when all employers follow the same idea, or when people are desperate to find any work to survive (e.g because of a lack of jobs in their city), the latter point about "choice" becomes moot.


This train of thought leads to the philosophy of freedom: positive freedom (free to) and negative freedom (free from). I think the best way to think about freedom is not as a binary relationship (X is free from/to Y), but as a ternary relationship (X is free from Y to Z).


A fellow cynic! I see FREE MARKET and straight away re-read the paragraph to see who is getting screwed. I'm rarely disappointed.


As kylebrown noted the distinction between 'free from' and 'free to', your interpretation suggests that the free market is the freedom to screw everyone you could manage to. I like this description, but the question is: is it net negative for people / production / indvidual?

-- a fellow cynic.


Yes, you can quit and work somewhere else. Also you can read about what Sony does on Hacker News and decide not to apply there for a job in the first place.

I really hope you are not actually against customized employment contracts- there are a lot of cases where they can be useful. What might be better is prohibiting instances of terms you find offensive. For example, California's moonlighting law, which effectively voids such clauses in employment contracts: http://www.quora.com/Legal-Issues/Which-California-laws-prot...


"Yes, you can quit and work somewhere else"

How exactly will it help when all employers adopt stupid and evil clauses in their contracts? Because that's what they do. Legal documents ("best practices") seem to circulate between companies, growing more bulk with each round. There's no place in this process for the consideration of employees' wishes. There can't be because legal department is famously isolated from the rest of the company and only cares about covering their own ass. They don't care about productivity. They don't care about happiness. They only care about having all bases covered. So I don't see why they won't grab every right from you that they can without violating the law.

If the law is where they stop, then there should be the law and nothing else. There's no reason for all those contracts-writing people to be employed.


I think for many people it's going to be hard to fulfill the following:

> ... except for those inventions that either: (1) relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer ...

As a programmer, there's not a lot I can do that is going to be considered wholly unrelated to what I'm employed for... at least it would be murky enough that the employer would have a good court case. This is infinitely more so for anyone working with Google, Apple, or any other company that has got their fingers in everything.


xugle, it seems your account got caught by the reapers. I found your comment to be informative, so it must have been some sort of mistake.


>Yes, you can quit and work somewhere else.

As if people always have that luxury. What if most companies in your field (e.g computer games) follow similar practices? "Go work at another field"? Why fell prey and bow down, looking for work elsewhere, and not try to change the system instead?

If a company didn't allow black or gay employees would that be acceptable, and people be told to just "work somewhere else"? I think not, people would revolt and try to change the laws so that the company cannot do that. Why should BS NDAs be any different?

People forget that:

a) we're not necessarily talking about the top 1% of employees companies fight over, but also for the rest 99% of the people, that don't have an upper hand in negotiations and don't always have the luxury of moving around, staying out of a job long enough to find a better one, etc.

b) we're not necessarily talking about a "seller's market" such as programming

c) even if we did (b), we're not necessarily talking about now and the Valley, but also about times and places where unemployment is rampant.


I'm with you, though you're fighting a pointless battle on HN, a great bastion of the privileged who don't even know their own privilege. They are young, male, predominantly white with knowledge that is (almost always) accidentally gained in a field of absurdly high demand.

99.9% of the world doesn't have the leverage we do. The amount of clucking and tsk-tsk-ing HNers do at the rest of the world is sickening.

This entire "well duh, quit" argument is the employment equivalent of "let them eat cake".


It's not a pointless battle. There are two possible reactions to any such post: engagement, which provides the possibility of changing the other person's mind, or disengagement, which at minimum gave you a little practice at making your point. The cost is the time and energy expended to write the post in the first place; as long as that doesn't outweigh either possibility, it's not pointless.


Not every company in your field is going to have contracts like that, I can pretty much guarantee that if you are willing to work for a smaller company you can negotiate something. And I did quit my job because we were bought by a larger company with a contract I didn't like just this summer. It's quite possible I'd be making more money if I hadn't restricted myself in this way, but, well, integrity is worth something. Also, what do you mean that being a programmer isn't a seller's market. Unemployment in our industry is just 2.5 percent!


I believe the point was that programming is a seller's market, so the ease with which someone like you may be able to switch jobs doesn't necessarily translate to other industries.

But even for programming, who says there's always another company doing the same work in your area that's hiring? Unemployment may be low for us, and telecommuting may be a valid option for many, but it seems easy to suggest there are practically infinite possibilities for programmers when the list can actually be pretty small depending on your geographic location, resume/skill set, and a variety of other personal factors.


It's only "anti-market" if you fall into the common fallacy of conflating ideas of individual and economic freedom with the functioning of the markets. It's not at all the case that increasing say contractual freedom is always coincident with the improved functioning of the markets. The classic example is anti-trust law. Laws banning producers from forming cartels to fix prices is a restriction on contractual freedom, but they're a restriction that produces better, more competitive markets.

There are a lot of considerations on the elasticity of demand for labor, information asymmetries between employer and employee, relative bargaining leverage, etc, that weigh in favor of laws to regulate the labor market. I think a great example is bans on NDA's or non-competes. They help make the labor market more liquid and prevent anti-competitive labor practices, even though they are a restriction on contractual freedom.


Negotiate for the removal of these clauses from your contract and don't sign it if they won't remove them. Sometimes this may mean passing on a job but if everyone did this then employers wouldn't try to get away with it.


In this case Sony is trying to change the agreement post employment. I wish the OP had said what HR said about ownwership of the sex tape, I really would have liked to use that example with the Google lawyers to see where they came down on it.

I don't doubt that future contracts will say "We reserve the right to update this in the future as conditions change in order to remain compliant with applicable regulations and laws and in order to protect the interests of the company."

Once you sign that, even with a permissive clause, they come back later than blam! Change it and you've pre-agreed to their changes which can now be much more restrictive.


In smaller companies you can sometimes rewrite the contract. I've done this, specifically to remove this clause.


>Negotiate for the removal of these clauses from your contract and don't sign it if they won't remove them. Sometimes this may mean passing on a job but if everyone did this then employers wouldn't try to get away with it.

The problem is that the effectiveness of this relies on the bargaining power of the employees, which, in a "buyer's market" is not that much.

Better to get the law to change to forbid such abuses for everyone.


If that was the case, sure. But in what world is this a buyer's market? At the last tech meetup I went to:

Employers looking for developers: 11 Developers looking for work: 2

Austin, TX, for reference.


I'm not sure a one-size-fits all regulated solution is the answer.

For example , what about a startup that wants to make signing of an NDA a requirement for employment? Would they be expected to just take it on trust that a new employee isn't leaking stuff to their competitors for cash?

What about employments that might deal with highly sensitive/classified information and thus require certain background checks to be performed before & during employment?


>Would they be expected to just take it on trust that a new employee isn't leaking stuff to their competitors for cash?

Well, make that punishable by law, and no need for an NDA.


How?

Pass a law forbidding anybody from talking about what they did at work that day including to their family or friends?

The majority of jobs don't really require any real secrecy thus one size fits all fails.


>Pass a law forbidding anybody from talking about what they did at work that day including to their family or friends?

Yes. Pass a law forbidding anybody from talking about what they did at work, including to their family or friends, if they are warned by the company that their work is confidential.

Then let a jury decide if they violated that.

If you work at a McDonalds, they need not tell you to keep confidential about anything. If you work at Apple, they can tell you: "no telling to anyone outside of what we do here".

No silly clauses about "all IP you create" and stuff.


So presumably your employer decides which parts of your work are and are not confidential. They then provide this information to you in writing and the implication is that by working for them you agree to abide by these rules.

In other words basically the definition of a contract.

The only difference I can see in this case is that your approach would actually make it a criminal offence (presumably involving a possible prison sentence) to violate your employers terms.


>The only difference I can see in this case

Well, there's a big difference: they don't get to dictate anything about your personal projects, stuff you make at home, your sex tape and such. Only about stuff done at the workplace and pertaining to the work.

Which is what the whole article was about, wasn't it?


I was replying to the original claim further up the thread that it would be preferable to abolish employment contracts and use only a standard set of legislation to resolve everything.

This is different from simply arguing that certain clauses should not be enforceable.


> I think that any funny clauses in the contracts should be abolished and the worker/employer relations should only be regulated by law.

That tends to work well in a one-size-fits-all well established world, but tends to work particularly poorly in new and emerging industries.


If we're going to have regulation, I think it would be more productive for it to make it easier to quit your job. That should actually improve the free-market dynamics.


How could it possibly be easier to quit your job?

If I want to quit my job all I have to is not show up to work and eventually, after a few attempts at communication, they will send me a form letter and my final paycheck and remove me from the list of active employees.

Of course, being a more polite sort, I'd probably at least email my manager that I wouldn't be coming back.

But seriously, how could it be easier?


Include "less dangerous" in "easier". Simply not showing up is not a good option for a responsible person trying to get ahead. Making sure the employment market is healthy and decoupling health care from employment might be helpful.


IP assignment is the only thing I really negotiate when I take on a new position. I had one company back-pedal as they were trying to change their terms from nothing to we own anything you make, any time. I had the CEO/CTO of another company write in plain English that anything done in my free time and without using company-owned facilities/hardware was my own IP (their legal bla-bla was unclear).

In the first case, the corrected terms got applied to everybody in the company but in the second, I believe I'm the only one who is protected thank to that written note.

I always use the analogy of an English teacher writing a book on his spare time. How he would actually be encouraged to do so, weighting how this would reflect nicely on the school he works at etc..


> I always use the analogy of an English teacher writing a book on his spare time. How he would actually be encouraged to do so, weighting how this would reflect nicely on the school he works at etc..

I think limiting IP ownership to right of first refusal is important for the same reasons. If I'm guaranteed that either the company will use the IP I developed, and I will (presumably) be rewarded for it or at least be able to include it on my resumé, or that I can own the IP myself, it is worthwhile to me to work on projects in my spare time.

However, without that guarantee, it's entirely likely that works I produce which are significant to me but not to my company will end up gathering dust on a shelf. Hence I'm disincentivized to work on such (potentially enriching) spare-time projects.


In case anyone is in a position to hire programmers and cares about treating creative people fairly, we have an open source Hacker Employment Contract: https://www.docracy.com/hackercontract that tries to fairly handle stuff like IP created after hours.


Thanks for posting this. Standard documents are great. Even if you don't get to use them they provide a point of reference for negotiating terms.


While I was working at Earthlink in 1999, they had a similar clause and I had a similar thought.

Although not around a sex tape, I though about a computer virus released from my Earthlink corporate email account. If I sent it out the virus technically belonged to Earthlink and not me. However, after talking to a lawyer about it years later, he explained there is ways the corporation could get out of the clause.


Every time I've gotten one of these documents I've amended it to "any IP for aspect foo of business bar." Example: video training software, or freemium mobile games. My employers have not objected, and it's a restriction I cane live with.

Honest employers want to keep you from competing with them while on the payroll, and want to avoid any claims that company IP belongs to you. Amend the document to address that and they may agree.


IANAL, but I have heard of something called the Reasonable Person Standard. Since the US is based on Common Law, I believe this standard could be used if this were really tested in court:

``The reasonable person (historically reasonable man) is one of many tools for explaining the law to a jury.[1] The "reasonable person" is an emergent concept of common law.[2] While there is (loose) consensus in black letter law, there is no universally accepted, technical definition. As a legal fiction,[2] the "reasonable person" is not an average person or a typical person. Instead, the "reasonable person" is a composite of a relevant community's judgment as to how a typical member of said community should behave in situations that might pose a threat of harm (through action or inaction) to the public.[3] The standard also holds that each person owes a duty to behave as a reasonable person would under the same or similar circumstances.[4][5] While the specific circumstances of each case will require varying kinds of conduct and degrees of care, the reasonable person standard undergoes no variation itself.[6][7] The "reasonable person" construct can be found applied in many areas of the law. The standard performs a crucial role in determining negligence in both criminal law—that is, criminal negligence—and tort law. The standard also has a presence in contract law, though its use there is substantially different.[8] It is used to determine contractual intent, or if a breach of the standard of care has occurred, provided a duty of care can be proven. The intent of a party can be determined by examining the understanding of a reasonable person, after consideration is given to all relevant circumstances of the case including the negotiations, any practices the parties have established between themselves, usages and any subsequent conduct of the parties.[9]"


Note. The contract, as described , would not hold for California employees.

See http://www.leginfo.ca.gov/cgi-bin/displaycode?section=lab... if you don't know what I'm talking about.

(That said, Sony probably does enough different things that the difference does not matter much to most people.)


In California the contract is often modified to include something like "except where prohibited by law" which means that the company gets IP assignment any time that 2870 doesn't apply.


(tl;dr: in California, such agreements are unenforceable)

I don't know what state the author was in when he was working for Sony, but California State law prohibits such arrangements in employer agreements (Labor code section 2870):

http://www.leginfo.ca.gov/cgi-bin/displaycode?section=lab...

2870. (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or (2) Result from any work performed by the employee for the employer. (b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.


The interesting thing to me is how is this even enforceable? Most of my friends keep a tight lid on all their freelance work - how would they even know someone had broken this contract?


My current employment contract says that even IP /related/ to my employer's business, as long as it is done on my own equipment and my own time, is mine.

It's an enlightened place.

I expect to have to prove it, to some extent, if it ever came up. Which is one of the reasons I have a private github account; commit logs on machines not controlled by me might be useful.


I think my Sony (Sony Europe not SCE) contract said "in the course of employment" which I went back to HR for clarification that it meant things related to or done for work. The in/during difference being very key. I seem to recall that I got the necessary clarifications and I've left now so no need to worry.


I'd love to know of any instances of this (work done in personal time being legally given to the company person worked for at the time) going to court.

Sounds like a non-compete clause to me; ie. basically unenforceable.


This story is missing the best part, which is where the compliance officer bluescreens after being asked about whether the sex tape would be owned by Sony.




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