After all, the argument that Silicon Valley's job hopping fosters innovation contradicts economists' common assumptions. "It didn't feel right to me," James B. Rebitzer, an economist at Case Western Reserve University, said in an interview.
When employees jump from company to company, they take their knowledge with them. "The innovation from one firm will tend to bleed over into other firms," Professor Rebitzer explained. For a given company, "it's hard to capture the returns on your innovation," he went on. "From an economics perspective, that should hamper innovation."
He found a possible answer to the puzzle in the work of two management scholars, Carliss Y. Baldwin and Kim B. Clark. In their book "Design Rules: The Power of Modularity" (MIT Press, 2000), they argued that when there is a lot of technological uncertainty, the fastest way to find the best solution is to permit lots of independent experiments. That requires modular designs rather than tightly integrated systems.
"By having a lot of modular experimenters, you can take the best, which will be a lot better than the average," Professor Rebitzer said. Employee mobility may encourage productive innovation, as people quickly move to whichever company comes up with the best new technology.
Link: Virginia Postrel, "In Silicon Valley, Job-Hopping Contributes to Innovation"
Link: The Rebitzer (et al.) paper