Thursday, January 6, 2011

Hiring A Competitor's Employee Instead Of An Unemployed Worker

My comment to "Unemployment: Why Don't Employers Fish More?" by Arnold Kling on the Econlog blog:
3. Hiring workers is an expensive capital investment. It takes a long time for a worker to learn enough about the organization to be able to contribute in a positive way.
If 3 above is correct, then it is to a firm's advantage to fill an opening with an employee from a competitor. Both firms will then have the cost of hiring, instead of just the firm with the original vacancy. The first firm then also faces the capital investment decision of investing now, hiring now, or waiting to invest, hiring later in the business cycle. It should not be too difficult to see situations where a firm wants to increase the hiring costs for a competitor as it itself hires, but also wants to wait to do so to maximize the value of its investment in a new employee. If it hires out of the pool now, the firm loses that future opportunity to increase a competitor's cost.

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