Labor Mobility and Industry Agglomeration: Silicon Valley
A frequent example used in the study of industry agglomeration is the hi-tech electronics agglomeration in Silicon Valley, California. The general problem to investigate relates to what advantages either the agglomeration in itself or Silicon Valley confers to businesses that result in agglomeration. The next-largest agglomeration in the same industries, Massachusetts’ Route 128, eventually fell far behind Silicon Valley. Franco and Mitchell (2005), citing the labor mobility-restricting legal tool of non-compete contracts (also known as covenants not to compete, or CNCs), support the earlier Gilson (1998) and Hyde (2003) argument that a legal prohibition on the enforcement CNCs in California was responsible for the differences between Silicon Valley and Route 128. Because of the innovation-dependent nature of the industry, employees working at one company could easily migrate to other companies or create their own new companies (“spin-outs” as opposed to “spin-offs”) as a result of the knowledge spillovers caused by their labor mobility. Non-compete contracts serve the function of allowing employers and employees to agree in advance to legally restrict such mobility.