Schumpeter: Ties that bind

THE business press is full of heartwarming stories about the “talent wars”. It reports that eBay pays its lead technologist twice as much as its chief executive. Apple recently slipped a high-flyer $8m to prevent him from jumping ship. Tech firms regularly spend lavishly on startups in order to “acqui-hire” their employees. They also compete furiously to provide workers with the best food and the most fashionable yoga instructors.But the talent wars have a darker side, one that is fought with lawsuits and handcuffs rather than bonuses and California rolls. Firms are increasingly resorting to litigation—some of it extraordinarily unpleasant—to prevent employees from moving to rivals. The result is that the labour market is becoming clogged.The most popular weapon on this front is the “non-compete” agreement, which prevents employees leaving a firm from working for a rival for a fixed period (usually up to two years but as many as five in Italy) or setting up a competing business. These were once mainly confined to the upper ranks of knowledgeintensive firms. Now they are ubiquitous: about 90% of managerial and technical employees in America have signed them.Other…

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