How engineers can fight wage fixing

Last January, it was revealed that Steve Jobs had contacted Google’s Eric Schmidt, along with the managers of dozens of tech firms including Adobe, Intel, LucasFilm and Comcast, in order to fix industry wages. These executives were acting to protect their and their shareholders’ interests by refusing to employ each other’s companies’ engineers, a commodity in short supply in Silicon Valley’s tight labor market, where in 2012 engineers averaged over $100,000 a year. That is a lot to most Americans, but it was kept below what it could have been; the result for millions of tech workers was a telling lack of mobility in a growing industry.

The logic behind such tightly controlled terms of employment is hardly new in the history of American business: Removing employees’ leverage in the firm is a proven management strategy. And it’s profitable: In the first five years of the Silicon Valley agreement, Google’s earnings per share increased by 640 percent. By 2010, Apple was the eighth most profitable company in the world. 

But for Apple’s and Google’s engineers, who had little choice but to accept what they were offered, the situation could not have been so liberating; there’s a reason why this kind of collusion is illegal. Today’s tech workers could take a lesson from Jobs and the history of American corporate management he embodies on the power of coordination. If engineers seek a greater voice in their projects, in their firms and, especially, in their pay, the only people they can rely on will be themselves. 

In the Gilded Age, managerial agreements like the Silicon Valley “arrangement” were rightfully despised as unfair market manipulation and seen essentially as cartels. When businessmen got together to hold prices high or — just as often — wages low, the manifest injustice of such price fixing became clear to workers and the public at large. Eventually legislators took action, banning such behavior with the Sherman and Clayton antitrust acts of 1890 and 1914, respectively.

It was thanks to these laws that, at the end of April, Apple and Google settled a civil suit for wage theft after their employees sued them. Today, the Department of Justice is investigating eBay for the same alleged abuses. But antitrust legislation and federal oversight have never been adequate protections against the collateral ills managers wreak when conspiring to fix markets in their favor. As the business historian Alfred Chandler showed in his classic 1977 study of the emergence of the modern corporation, “Visible Hands,” the modern manager has since his emergence quickly and effortlessly found ways around such laws. 

Just take the passage of the first antitrust act: In 1889, as pressure mounted across the country for Congress to ban monopolistic behavior, the business-influenced New Jersey Legislature passed a new incorporation law allowing for the creation of holding companies, pre-empting the spirit of the federal regulation before it was even created by allowing business cartels to formally consolidate into a single corporation. The next year, when Congress passed the Sherman Antitrust Act, corporate managers had already prepared the legal framework necessary to maintain their grip on the rapidly consolidating ownership structures of the industrial economy.

“Immediately [after the Sherman Act],” wrote Chandler, “the ‘New Jersey holding company’ took the place of the trust as the legal form used to merge a number of single-unit enterprises’ operating facilities in several states into a single, large consolidated enterprise.” Indeed, he continued, “in these formative years of modern industry, federal action under the Sherman Act never transformed an oligopolistic industry back into a traditionally competitive one.”

While antitrust investigations at the behest of liberal governments could occasionally break up egregious examples of monopoly, in the long run the laws inadvertently intensified managers’ control and coordination of their industrial holdings. 

Just as their predecessors found ways of using government to advance their collective interests, today’s Silicon Valley executives have united around the issue of labor control in presenting their grievances to Washington.

The highest-profile Silicon Valley PAC is FWD.US, which bills itself as “a diverse group of leading innovators, job creators, business owners and founders from the tech community” and boasts donors such as Bill Gates, PayPal’s Max Levchin, Google’s Eric Schmidt and Microsoft’s Brad Smith — each of whose companies is implicated in Jobs’ wage-fixing cartel. The lobby’s website claims that “We have a once in a generation opportunity to pass immigration reform.” Yet the policies they propose make clear their objective: widening the skilled-labor pool, depressing engineers’ salaries and removing any individual leverage workers have on the job.

Rather than guaranteeing amnesty for the 11 million immigrants already living and working within our borders, FWD.US advocates a massive expansion of the H-1B visa program that has been shown to lower wages and accelerate outsourcing in the tech industry. In 2013, over half of the H-1B visas granted went to offshore outsourcing firms. These companies hire workers for existing tech jobs at lower wages, and can go on to cycle them — and the jobs they perform — out of the country once their stay is up. Because their immigration status depends on employment, there is a clear disincentive to speak up on the job.

As entrepreneur and academic Vivek Wadhwa wrote for the American Enterprise Institute, “you can hire a superstar for the cost of an average worker … Add to this the inability of an H-1B employee to jump ship and you have a strong incentive to hire workers on these visas.”

In the United States there are currently three unemployed high-tech workers for every one job opening. Still, the directors of the major employing firms in the industry are pressing government to give them greater leverage over their workers, citing a highly exaggerated skills gap as a threat to the nation’s future. This is a rhetorical sleight of hand, a rehearsed alibi Silicon Valley executives have been telling the public whenever they are asked the question “What are you lobbying for?” The mendacity of the claim is best deflated by New York Times columnist Paul Krugman. “By blaming workers for their own plight,” he wrote, “the skills myth shifts attention away from the spectacle of soaring profits and bonuses even as employment and wages stagnate.” As in the age of the railroads, when American industrialists argued that monopolistic behavior was necessary to avoid “ruinous competition,” today’s tech CEOs have rallied their considerable power to protect their collective interests as owners and managers of the nation’s greatest wealth-producing firms.

But during the birth of the modern corporation, American workers who were facing such a coordinated economy came to learn that their wages and working conditions were largely dictated by the accounting needs of their firms — which, by their very nature as private businesses, privileged profits over wages. They saw that the only way to challenge this situation would be to organize around their shared interests, as their employers had demonstrated so successfully, and to create oppositional structures within their firms to contend for power in determining how business operations were coordinated. Today, luckily, unlike in the Gilded Age, workers have at least formal protections for doing just this. Their right to freely associate is guaranteed under both the National Labor Relations Act and the United Nations’ Universal Declaration of Human Rights.

So engineers in the tech industry today should take some cues from their working-class forebears, and also from the high-profile alliances their bosses have forged. The best way to advance their interests as employees will be to identify them and organize together. Wage-theft lawsuits and federal investigations may award damages after the fact, but the only way employees can protect themselves against future abuses and manipulations will be to cooperate to advance their mutual interests, either through collective bargaining with their employers or through lobbying government for universal programs that make them less dependent on their firms. If they hope to counterbalance corporate control, they will have to at least make their voice heard.