Labor Coordination and Division: Human Capital Investment in Supply Chains

Abstract

We document a human capital coordination framework between supply chain partners. We show that the coordination between supply chain partners is much more intensive than firms who are potential but not actual supply chain partners, supporting the human capital as a relationship-specific investment in supply chains. The coordination is further enhanced for suppliers with higher R&D intensity, higher bargaining power, and lower human capital adjustment costs. We establish a causality claim using the H-1B lottery as an exogenous instrument variable to firms' human capital acquisition. By examining the detailed job occupations and demanded skills, we find that supply chain partners coordinate by hiring common and labor-intensive occupations and general skills while pursuing labor division for positions of specialized, technology-intensive occupations and specialized skills.