November 2021

IZA DP No. 14843: Employer Market Power in Silicon Valley

Adam Smith alleged that employers sometimes secretly collude to reduce labor earnings. This paper examines an important case of such behavior: illegal no-poaching agreements through which information-technology companies agreed not to compete for each other's workers. Exploiting the plausibly exogenous timing of a US Department of Justice investigation, I estimate the effects of these agreements using a difference-in-differences design. Data from Glassdoor permit the inclusion of rich employer- and job-level controls. On average, the no-poaching agreements reduced salaries at colluding firms by 4.8 percent. Stock bonuses and ratings of job satisfaction were also negatively affected. These estimates are consistent with considerable employer market power.