Double shock effects of downsizing in economic downturn on employees with high firm-specificity

Abstract

Extant human capital theory relies on isolating mechanisms through which the employer restricts mobility of employees with firm-specific human capital (less favorable to external market). Recently, studies suggested a possibility that such employees experience reduced job satisfaction and increased attention from new employers. In an effort to find a strong situation in which collapse of isolating mechanisms happens prevalently, this paper suggests double shock effects of downsizing in economic downturn, which cause employees with firm-specific skills to feel violation of the psychological contract and want to leave the organization voluntarily, using two Korean labor panel studies. Study 1 suggested that employees with firm-specific skills experience were less satisfied with their jobs in economic downturn than those with general skills. Study 2 showed that downsizing cause employees to perceive low levels of trust in talent management and intend to leave the organization when the employer downsize their employees in economic downturn. Firm-specificity worked as a moderator between trust and turnover intention in a way that employees with high firm- specificity are more likely to feel distrust in talent management than those with low firm-specificity, resulting in high levels of turnover intention. This paper contributes to human capital literature by shedding a light on the possibility that traditional belief of human capital theory could be inconsistent with a specific situation and fail to explain unexpected outcomes.