Oxford professor Ewart Keep writes in a paper titled Market Failure in Skills (p. 3) that

For firms there is the problem of investment in staff who may leave taking their skills with them.

Some of the historical solutions to this problem involve limiting the mobility of the labor force, ranging from slavery, indentured servitude, and more recently some kinds work visas that are only valid for one employer.

So in this sense, some human rights are bad for markets, leading to certain kind of market failure. Is this view uncontroversial among economists? And a complementary question: can measures that limit worker mobility also result in other way in market failure?

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    $\begingroup$ It's worth noting that this market failure only exists if the person themselves can't invest in their own skills, and today by and large they can do this. The opinion that this is a significant market failure that must be corrected by restricting labor mobility is certainly not commonly held in the profession. $\endgroup$ – Starfall Jun 10 '18 at 4:14
  • $\begingroup$ @Starfall, even if they can't invest in their own skills they should usually be able to accept lower wages in exchange for training. More generally, this problem is solved without restrictions on switching firms. Instead, they back load compensation towards later in life. Under pay now, relative to marginal product, during human capital formation, and overpay later once those skills are fully developed. That's usually the justification for Japanese life-cycle pay practices at large conglomerates. $\endgroup$ – BKay Jul 10 '18 at 15:29

Well, from the same paper (p. 5), it's not all that clear that the theory translates to actual market failure:

There is very little reliable data on either the scale of poaching or its impact upon employers’ training decisions – despite this being frequently adduced by policy makers as the prime cause of market failure in training. One of the few recent surveys to touch on the issue (4) suggested that poaching was a serious problem for no more than about one per cent of the employers in the sample, whereas an earlier survey of employers suggested that the possibility of poaching had discouraged as many as 38% from investing in skill (5).

The references cited for data being:

(4) J. Kitching and R. Blackburn. 2002. ‘The Nature of Training and Motivation to Train in Small Firms’, DfES Research Report RR330, Nottingham: DfES.

(5) Training Agency. 1989. Training in Britain, London: HMSO.

I think this constitutes a partial answer, but I'm quite interested in more data, in particular from other countries.

And, yes, as I suspected, labor immobility is also a form (perhaps less controversial) of market failure. But this does in turn raise the interesting question whether you can fix one market failure without causing another (in the labor market).


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