Perceived Firm-Specific Human Capital and Turnover: Stuck in their Heads?

Abstract

Drawing on human capital theory, strategy scholars have emphasized firm- specific human capital as a source of sustained competitive advantage. In addition to its role in value creation, FSHC is thought to limit rival imitation and rent appropriation by hindering employee mobility. However, recent research links employee perceptions of FSHC to lower organizational commitment and job satisfaction. Such workers may seem to be an unlikely source of competitive advantage. In this study, we explore micro-foundations of firm-specific human capital by theoretically and empirically examining how employee perceptions of firm-specific skills relate to subsequent turnover - extant literature suggests that turnover would be significantly reduced. We test our hypotheses using a large panel dataset tracking employment, attitudes and outcomes. We find that perceptions of firm specific skills increase the likelihood of subsequent turnover but do not appear to have any effect on wages when people move. That is, just because employees perceive their skills to be specific, does not necessarily mean that their actual external opportunities are constrained. These findings suggest that firm- specific human capital, as perceived by employees, may drive behavior in ways not anticipated by existing theory. This, in turn, may challenge the assumed relationship between firm-specific human capital and sustained competitive advantage.