Historical Example of Labor Supply and Demand, Essay Example

The rise of the internet in the late 1990s resulted in the largest creation of wealth in the entire human history (Harvard Business School, 2000). It is not a surprise given the fact that stock market would seem to bestow huge valuations on every other dot com company, even without a proven business model. There was a widespread belief that getting into the game first will be the key to gaining market share(Blank, 2011). This naturally meant high demand for individuals with computer science and programming skills which exceeded labor supply and pushed salaries upwards. Costs were not a concern for internet startups because of excessive optimism that internet is going to redefine operational efficiency and profitability. The demand for labor was so high that companies were even offering stock options to attract the computer science graduates.

Internet was expected to be the industrial revolution of the twenty first century and rightfully so. But the optimism became unrealistic which led to excessive companies’ valuations. Even though no one really understood how the business models would change to accommodate internet operations, they put their blind faith in the marketing concept that first movers emerge as the leading players. This is why they competed fiercely for talent no matter what the cost. In addition, unlike brick and mortar retailers, setting online operations is pretty quick and less costly which means numerous internet companies formed quickly. Due to never ending IPO records, financiers also became greedy and opened their wallets which meant that internet startups had access to plenty of funding to acquire talent. Internet companies just wanted to set up websites as soon as possible without any business planning and all they needed were employees who could manage the websites.

References

Blank, S. (2011, March 11). New Rules for the New Internet Bubble. Retrieved August 25, 2011, from http://steveblank.com/2011/03/18/new-rules-for-the-new-bubble/

Harvard Business School. (2000, December 4). Done Deals: Venture Capitalists Tell Their Story: Featured HBS John Doerr. Retrieved August 25, 2011, from http://hbswk.hbs.edu/archive/1799.html