Product Characteristics, Human Capital, and Labor Market Segments: Services and the Distribution of Rewards in Labor Market Transactions

Abstract

This article contends that one key to understanding different forms of work organization lies in the nature of the products being created. Product characteristics are proposed to be critical determinants of the type of human capital, either general or firm specific. Following from prior theory, labor market barriers develop based on type of human capital. These barriers then have a direct bearing on employee rewards. The nature of the product distinction is captured with a comparison of two product-types (goods and services) conceived as theoretically distinct. General skills are hypothesized to be more important in the service-producing sector, while firm-specific skills are hypothesized to be more important in the goods-producing sector. Empirical analyses using the 1991 General Social Survey compare workers in the service-producing and goods-producing sectors to illustrate differences in the salience of firm-specific and general skills. Two hypotheses are supported. Firm-specific skills have a stronger effect on earnings in manufacturing industries than in service industries. Also, skills acquired from on-the-job training, when compared with other skills, are more weakly related to service employee rewards. These distinctions between sectors suggest insights into structures unique to the service employment workplace.