Isolating the Symbolic Implications of Employee Mobility: Price Increases after Hiring Winemakers from Prominent Wineries
Peter William Roberts
Harvard Business School
Christopher I. Rider
Georgetown University, McDonough School of Business
April 1, 2011
American Economic Review, Vol. 101, No. 3, 2011
When a firm hires a skilled employee from a prominent competitor, an indirect affiliation between the two firms is created. Recent organizational research indicates that such affiliations may influence the hiring firm’s prices, both substantively and symbolically (e.g., Joel M. Podolny 2001). Substantively, product quality may be enhanced by the human capital the new employee transfers from their prior employer. If so, then the hiring firm’s prices should increase. Symbolically, because the prior employer was a prominent competitor, the move signals to consumers that the hiring firm’s quality may be better than previously believed. Accordingly, prices should increase. These substantive and symbolic effects are difficult to disentangle empirically. Consequently, their independent effects are more theoretically advanced than empirically supported.
We leverage an idiosyncratic feature of wine markets to isolate the substance from symbol in the hiring of skilled winemakers. Because wines are aged before they are released, evaluated, and priced, new winemakers start work as wines made by their predecessors enter the market. Assuming that winemakers exert little influence on the quality of wines that are already in the cellar (an assumption we validate empirically), then post-hire pricing effects are primarily, if not purely, symbolic. As such, once we control for the propensity of wineries to hire new winemakers, we isolate signaling (i.e., symbolic) from human capital effects on wine prices following hiring events.
Date posted: September 29, 2011