Thier’s Law Applied to Human Capital

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This blog entry was inspired by feedback from Enrique at the Prior Probability blog.

If Gresham’s Law applies to retain human capital in the job market, is it possible that Thier’s law (p.9) could also be applicable in certain contexts? On money, when legal tender laws forcing vendors to accept both forms of money at nominal value, economic agents will choose to transact with the higher valued currency. Presenting an axiom that is the opposite of Gresham’s Law, “ Good money drives out bad money”. Typically in the arena of monetary economics, the divide between advocates of Gresham’s Law and Thier’s Law is a sharply delineated dichotomy. Most proponents of one will not defend the possibility that the principle could apply to the circulation of money.

However, in terms of the circulation of human capital these concepts are not necessarily opposed. Employee retention is the byproduct of several highly qualitative attributes that are generally specific to a certain firm. In corporate vernacular, the term “culture” is thrown around so frequently that it has become a buzzword deeply embedded in the American psyche. Companies such as Google, go to great lengths to demonstrate that they have a flexible, open, and innovative corporate culture. The veracity of the claims is ultimately judged by the perceptions of the individual employees. One employee may adore working at Google, while their colleague completely despises the company’s ethos. Making the ebbs-and-flows of human capital even more complex. Employee retention at the individual level is based upon a multitude of various factors. The aggregated collection of the opinions of all the individual employees regarding their work-life satisfaction tends to paint a fuller picture. If while perusing Glassdoor, you happen to see a company with eighty-five two-star ratings, chances are this is not the petty slander of a few disgruntled employees. This is why oftentimes companies will periodically send out surveys to their employees in an attempt to measure overall morale throughout their organization.

Putting aside the highly individualized variable of career satisfaction metrics for an entire firm, if there is a pattern of talented employees leaving, there is a retention problem. Sometimes this may be isolated to a specific department even if the firm as a whole has no issues keeping competent and productive workers. Certain companies and even job roles select for specific attributes that may not be conducive to attracting skilled and reliable labor. Some industries are notorious for high turnover rates, one salient example being the hospitality industry. I remember a few years back, being in between jobs, so I briefly worked at a call-center. For me, this was an income stream until I found something else, for many of the people in my training class it was a lifelong career path. This path was a volatile one. Staying only a few months at one company and then abruptly quitting, generally with no notice. Upon receiving a new job offer, I gave my supervisor my two-week notice and he was astonished by the fact I even bothered to take this step. After only six months, only five people (including myself) out of the twenty-five in my training class remained. Industries and job roles with high turnover may be more willing to retain employees with fewer skills or with a poor performance history, due to the outflow of higher-skilled employees. Perfectly mirror the effect described in Thier’s law, instead of money, the commodity that is flowing out of the firms is quality human capital.

The question becomes how can these opposed ideas transpire concurrently in the same labor market or even the same company. The answer to this question is predicated upon a “rules of the game” type logic. Each company and each interior department within a firm operate as governing bodies directing the task of workers. Meaning both varying capacity function as “ruler-makers” within the company. Think of corporate policy as being analogous to the federal government, while the department formulated rules are similar to state law. Clearly, in most cases, corporate policy supersedes department policies. If these rules are too onerous or unjust there is little a qualified and skilled employee could other than leave. Either accept and abide by the rules set forth or resign. Resignation being a clear withdrawal of consent on the part of the employee. One relevant example of this is companies still drug testing for marijuana in states where it is legal. Granted, it is an organization’s prerogative to make employees refraining from drug use a contingency of employment. However, if enough high-caliber job candidates take to smoking cannabis they may be in a bit of a quandary. A few years back the FBI ran into this problem due to their “drug-free” employment policy.

If the rules governing the management of a firm are too oppressive, people with options are going to find another job opportunity. What the company is left with are those who lack the skills, ambition, and conscientiousness required for productivity. The employer is left with the staff that clings to their jobs for dear-life as odds are they do not carry too much value on the job market. Much how department policies such as catering to senior and skilled workers can impose an effect similar to Gresham’s Law the opposite is also true. If you create rules that disincentives tenure and self-development, odds are you will lose a lot of great workers. The kind of workers that can be a game-changer in managing strategic customers. As we have observed with the call-center example, frequently due to the oppressive rules, low pay, and dismal work environment people with potential tend to leave these positions. Leaving you with the unskilled and the desperate who are locked-in to the role due to their circumstances. Keeping this dynamic in mind, it is a wonder why people expect quality service whenever they call tech support.

Drug Testing In Public Schools

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The right to privacy is fiercely defended liberty in the United States. Codified in the Fourth Amendment of the U.S. Constitution is considered a treasured bulwark from unnecessary surveillance. However, much like any of the other liberties guaranteed to American citizens, it is not without constraints. In certain contexts, our right to privacy is relinquished due to superseding parameters. For example, while in public our right to privacy is loosened.  Also, in the advent of a criminal investigation. If there is probable cause or a search warrant, the interest of the public good takes primacy over the rights of the individual. It may be fair to debate the ethics of subverting individual liberty for the common good, but the law is the law.

It has been well established that while on the premise of public school students do not always have a reasonable expectation of privacy. The degree to which underage students do have a right to privacy is a difficult matter to clarify. The subject of mandatory drug tests on school grounds is no less murky. Much like another Fourth Amendment controversy the conclusion is heavily contingent on context. It is the contextual details that form the line of demarcation between legal and illegal conduct. As a general rule of thumb, subjecting students to random urinalysis testing is legally questionable without extenuating circumstances (P. 256). The defining case for a student drug test was Vernonia School District V. Acton. The Vernonia School District adopted the requirement of a drug test as a prerequisite for participating in interscholastic sports programs. It was ruled that the interest of ensuring the safety of the students took primacy over any privacy concerns. Especially considering the means of administrating the drug test were viewed as being “minimally” invasive.  Pertaining specifically to a drug-testing requirement to play sports the late Justice Scalia observed that students have the same expectation of privacy as the general population. This is even more so true for student-athletes (P. 257).

Perhaps it fair to concede that dispensing with a small amount of privacy is the nonmonetary price to play varsity football. It may even be reasonable to assume that the individual student values the opportunity to play football more than the privacy they surrender. In terms of this contingency being subjected to drug testing is completely voluntary. Mirroring the hiring procedures of many private corporations. If you don’t want to undergo the test don’t accept the job. Likewise, you can elect to simply not play basketball. This issue becomes profoundly more problematic when it is involuntary and without suspicion.

Unfortunately, the Anderson Community School Corporation in Indiana decided to push the envelope on the issue. The school district decided to form a policy where drug tests were mandated for any student suspended for getting into a physical altercation school grounds. Refusal results in either an expended suspension or expulsion (P.257). The school district cited the loose correlation between the pharmacological effects of drugs and violent behavior for justifying this policy (P. 257). Needless to say, a student, James Willis, did challenge this policy. The supreme court declined to review the case citing the decision in Vernonia. However, a silver lining to the question of in-school drug testing procedures came when the Tenth Circuit Court of Appeals rejected the requirement of drug testing for non-athletic extracurricular activities (P. 258). In the 2002 ruling Board of Education V.Earls, the supreme court held that it was reasonable to subject all students participating in extracurricular programs to drug testing.

I have some strong reservations for endorsing drug testing in public schools. The duty of preventing and intervening in instances of drug use is the responsibility of the parents. However, I can concede drug testing to participate in extracurricular activities providing this requirement is articulate to the students.  Since participation in such programs is completely voluntary and analogous to drug testing requirements for a job. The problem becomes when school districts engage in a form of “mission creep” with a loose application of the Vernonia case. Mandating drug tests as a condition for returning to school after being suspended for fighting is truly invasive.  Not to mention coercive. The offense at hand is engaging in violent behavior. That alone isn’t enough evidence to assume a probable cause for drug use. Not from a legal standpoint necessarily.  but from the standpoint of deductive reasoning. While the Anderson Community School district did not punish students for a positive test, they did require the student to seek help. This blatantly veers into the responsibilities of the child’s parent or guardian.