The biggest companies in the world are keeping tech workers’ wages low by buying up companies instead of hiring their talent, creating an increasingly limited number of potential workplaces for developers and other high-tech professionals — all while draining talent pools for enterprise CIOs.
This condition — called monopsony, which describes a market in which there is only one buyer — has been fueled by the open practice among tech giants such as Google and Meta of acquiring smaller businesses for their talent, not for their products or patents, according to a new paper published by researchers from Cornell, the University of Toronto, and the Universities of Mannheim and Surrey.
“While an oft-mentioned concern regarding large tech firms buying small firms is the potential for such deals to reinforce monopoly power in the product market, we argue instead that acquihiring can be understood as a means of bolstering monopsony power in the specialized labor market,” the researchers wrote.
The basic idea, according to the paper, is that the market for specialized technology experts isn’t especially deep — these types of workers only have a limited number of places where they can reach their full potential. Through various tactics — including threatening to pursue a smaller firm’s key workers directly, with aggressive salary and benefit increases — the world’s largest technology firms can leverage their positions to get favorable terms in an acquisition, which brings the smaller company’s workers into the larger company anyway.
This creates a situation in which wage competition through direct attempts to hire a given valuable employee are eliminated. Furthermore, gifted workers at startups generally lose ownership stakes and other private benefits during the acquihiring process, the researchers said.
“Unsurprisingly, when an acquisition is successful, wages are low and employees with specialized talent suffer,” the authors wrote. Whether the main impetus for the acquirer is the ability to gain the employee’s services without compensating them for private benefits, or the removal of the need to negotiate over a direct hiring, the practice of acquihiring is a harmful one for both the employees involved and the labor market as a whole, according to the paper.
By binding these employees up in their ranks through their acquihiring practices, tech giants also sap talent pools for highly sought skills. Enterprise CIOs, who are beginning to make inroads in luring away Silicon Valley–style talent from the traditional hiring market, are less likely to acquire talent through acquisitions, putting them at further disadvantage.
The job market for tech workers has been uneven of late, with researcher Victor Janulaitis saying last week that the “first signs” of a downturn are beginning to appear in early 2024. Numerous high-profile companies, including Google, Microsoft, and SAP, have had large-scale layoffs in the past year.
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